Price,  25  Cents. 


Our  Railroads 


BEING    A 


STATEMENT  OF  THE  VALUE  AND  EARNINGS 


RAILROADS  OF  THE  WESTERN  STATES. 


BY  HARRY   P.   ROBINSON. 


SECOND  EDITION. 


St.  Paul,  Minnesota,  1890. 


385 


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csX? 


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Our  Railroads. 

By    harry    p.    ROBINSON, 

editor  of  the 
Northwestern  Railroader. 


COPYRIOHTED,  1890. 


o 


1675 


AUTHORITIES   QUOTED    IN    THE    FOLLOWING    PAGES. 


Second  Annual  Report  of  the  Inter-state  Commerce  Commis- 
sion, 1888. 

Report  of  the  Statistician  of  the  Inter-state  Commerce  Com- 
mission, 1889. 

Reports  of  the  Boards  of  Railroad  Commissioners  for  the 
year  1889  of  the  states  of  Minnesota,  Iowa,  Kansas,  Missouri, 
Michigan,  and  the  Territory  of  Dakota. 

Report  of  the  Railroad  Commissioner  of  Wisconsin,  1888. 

Reports  of  the  Board  of  Transportation  of  the  state  of  Ne- 
braska. 

Report  of  the  Assistant  Secretaries  of  the  British  Board  of 
Trade  on  the  Working  of  British  Railways,  1888. 

Report  to  the  U.  S.  Department  of  Agriculture,  1890. 

Administration  Report  on  the  Railways  of  India,  1889-90. 

Report  of  the  Victorian  Railway  Commissioners,  1 889, 

Report  of  the  Railway  Commissioners  of  New  South  Wales, 
1889. 

Poor's  Manual  of  Railroads,  1889  and  1890. 

Annual  report  of  the  Directors  of  the  Chicago  and  Alton 
Railroad,  1889. 

Annual  Report  of  the  Chicago  and  Northwestern  Railway 
Company,  1890. 

Prof.  A.  T.  Hadley,  "  The  Railroads  in  their  Business  Rela- 
tions." 


INTRODUCTORY. 


One  of  the  immediate  results  of  the  publication  of  the  first 
edition  of  this  pamphlet  was  a  sudden  influx  to  the  author  of 
letters  of  enquiry.  These  letters  came  almost  entirely  from  two 
classes  of  men — from  railroad  employes  and  from  farmers,  or, 
at  least,  residents  in  small  towns  and  rural  neighborhoods. 
The  enquiries  were  for  the  most  part  of  an  elementary 
nature,  such  as  "What  is  the  difference  between  bonds  and 
stocks  ?"  "  What  does  *  capitalization  '  mean  ?"  and  so  forth.  In 
view  of  this  fact,  readers  who  are  more  familiar  with  the  subject 
matter  of  the  railroad  question  will  pardon  the  introduction 
of  this  very  elementary  preface. 

The  object  is  to  show  in  the  simplest  form  possible  that  there 
is  nothing  mysterious  about  the  organization  of  a  railroad  com- 
pany and  the  building  of  a  railroad,  and  for  this  purpose  an 
imaginary  case  is  introduced.  Each  reader  will  please  believe 
that  this  is  not  intended  for  his  instruction,  but  for  the  instruc- 
tion of  some  one  else  who  knows  much  less  than  he  does. 

Let  us  suppose  that  two  men  start  out,  one  to  be  a  farmer  and 
the  other  to  build  a  railroad. 

The  farmer  has  $1,000  capital.       I  The  railroad  man  has  $1,000,000 

capital. 

The  farmer  receives  from  the  gov-   |  The  railroad  man   receives    priv- 

ernment    extraordinary    privileges,   |  ileges   from    the   government    and 

by  which  he  gets  his  land  for  noth-   j  counties  on    his    line    by  which  he 

'"g-  gets  his  land  for  right  of  way,  etc., 

paitly  for  nothing  and  partly  very 

I  cheap. 

The  farmer's  capital  of  $1,000  is  The    railroad    man's    capital    of 

then  spent    in    fees,  preliminary  $1,000,000  is    then    spent    in    fees, 

expenses,  farm    binldings,  fences,   i  preliminary  expenses,  surveys    and 

breaking,  etc.                                           <  building  the  first  section,  50  miles, 

j  of  road. 

The  farmer  needs  more  buildings  The  railroad  man  needs   more 

and  machinery,                                         1  road,  terminals  and  equipment, 


OUR    RAILROADS, 


So  he  borrows  $1,000  more  and 
mortgages  his  farm  to  get  it,  and 
gives  his  note — 


So  he  borrows  $1,000,000  more 
and  mortgages  his  road  to  get  it, 
and  issues  bonds — 


WHICH    IS   A    BONDED    DEBT. 


The  farmer  has  to  go  to  a  pro- 
fessional money  lender  for  his 
'$1,000,  who  only  ^ves  him  $850 
and  makes  him  pay  mterest  at  8  per 
cent,  on  the  whole  $1,000,  or  $80 
a  year — 


The  railroad  man  has  to  go  to  a 
professional  floater  of  railroad  se- 
curities to  get  his  $1,000,000,  who 
only  gives  him  $850,000,  but  makes 
him  pay  interest  at  8  per  cent,  on 
the  whole  $1,000,000,  or  $80,000 
a  year — 


WHICH    INTEREST    IS    A    FIXED    CHARGE. 


The  farmer  puts  up  barns  and 
buys  machinery  with  his  $850,  be- 
sides breaking  more  land. 

Then  he  works  his  farm  for  a 
year. 

There  is  now  an  investment  in  the 
farm  of  $2,000,  of  which  $1,000  is 
capital  and  $1,000  is  in  the  mort- 
gage. 

As  a  result  of  the  first  year's  work 
the  farmer  gets  $580  profit  from  his 
farm. 

Of  this,  $80  goes  to  pay  interest. 

The  other  $500  is  a  profit  of  50 
per  cent,  on  his  original  capital — 


The  railroad  man  puts  up  stations 
and  buys  equipment  with  his  $850,- 
000,  besides  laying  some  more 
track. 

Then  he  operates  his  railroad  for 
a  year. 

There  is  now  an  investment  in  the 
railroad  of  $2,000,000,  of  which 
$1,000,000  is  capital  and  $1,000,- 
000  is  represented  by  bonds. 

As  a  result  of  the  first  year's 
operation  the  railroad  man  gets 
$580,000  profit  from  his  railroad. 

Of  this,  $80,000  goes  to  pay  in- 
terest. 

The  other  $500,000  is  a  profit  of 
50  per  cent,  on  his  original  capital — 


WHICH    PROFIT    IS    DIVIDENDS. 


But  instead  of  taking  this  $500 
for  his  own  use,  he  puts  it  back  into 
the  farm 

And  buys  live  stock  with  it. 

This  increases  the  capital  invest- 
ment to  $1,500. 

The  second  year,  owing  to  hard 
times  and  low  prices,  he  fails  to  get 
any  profit  from  his  farm. 

But  the  interest  must  be  paid,  and 
he  needs  money  to  go  on  with. 

So  he  borrows  $500  more. 

And  mortgages  his  extra  buildings 
and  live  stock  to  get  it. 

Which  increases  his  bonded  indebt- 
edness to  $1,500 

And  his  annual  interest  to  $120. 

The  third  year  he  makes  just  $120 
profit. 

Which  all  goes  in  interest  on  his 
mortgage, 

And  he  gets  no  return  for  himself 
on  his  own  capital. 


But  instead  of  taking  this  $500.- 
000  for  his  own  use,  he  puts  it  back 
into  the  railroad 

And  buys  rolling  stock  with  it. 

This  increases  the  capital  invest- 
ment to  $1,500,000 

The  next  year,  owing  to  hard 
times  and  low  rates,  he  fails  to  get 
any  profit  from  his  railroad. 

But  the  interest  must  be  paid,  and 
he  needs  money  to  go  on  w^ith. 

So  he  borrows  $500,000  more, 

And  mortgages  his  extra  buildings 
and  rolling  stock  to  get  it. 

Which  increases  his  bonded  indebt- 
edness to  $1,500,000 

And  his  annual  fixed  charges  to 
$120,000. 

The  third  year  he  makes  just 
$120,000  profit, 

Which  all  goes  in  interest  on  his 
bonds, 

But  he  gets  no  dividends  for  him- 
self on  his  own  capital. 


OUR    RAILROADS.  7 

The  fourth  year  prices  are  worse  The  fourth  year  rates  are  worse 

than  ever,  and  he  comes  out  at  the      than  ever,  and  he  comes  out  at  the 
end  of  the  year  with  a  net  loss.  end  of  the  year  with  a  net  loss. 

He  cannot  pay  his  interest  and  the  He  cannot  pay  his  interest  and  the 

holder  of  his  mortgage  forecloses,  holders  of  the  bonds  apply  for   a 

■   receiver. 
And  the  farm  is  sold  at  auction —     I       And  the  railroad  is  sold  at  auc- 

I  tion — 

WHICH    IS    BANKRUPTCY. 


Now  when  the  farm  was  sold  for  what  it  would  fetch  it  repre- 
sented an  investment  of  ^3,000,  of  which  ;^i,500  was  original 
investment  and  ^1,500  was  represented  by  the  mortgage. 

When  the  railroad  was  sold  for  what  it  would  fetch  it  repre- 
sented an  investment  of  I3, 000,000,  of  which  $1,500,000  was 
capital  invested  and  ;^  1,500,000  was  represented  by  the  bonds. 

In  the  case  of  the  railroad,  instead  of  one  man  having  a  capital 
of  $1,000,000  to  start  with,  it  is  usually  subscribed  by,  say,  one 
hundred  men  who  have  $10,000  each,  when  each  possesses  one 
one-hundredth  of  the  stock,  and  all  together  are  the  stock- 
holders of  the  company. 

When  a  farmer  (or  other  man)  is  told  that  railroad  capital 
does  not  deserve  to  earn  any  dividends,  he  has  only  to  refer  to 
his  own  case  and  consider  whether  he  himself  is  entitled  to  any 
profit  on  his  investment  in  his  farm  or  business. 

And  when  a  farmer  or  other  man  is  told  that  all  that  a  rail- 
road company  earns  in  excess  of  operating  expenses  is  "  profit," 
and  that  if  it  earns  interest  on  its  bonds  that  is  as  much  as  it 
deserves,  he  has  only  to  think  if  in  his  own  case  he  considers 
the  money  which  has  to  go  in  interest  on  his  mortgage  as 
"profit,"  or  if,  when  he  earns  barely  enough  to  pay  that  interest, 
that  is  as  much  as  he  deserves. 

Finally,  the  author  wishes  to  call  attention  to  the  fact  that  the 
figures  and  statements  in  the  following  pages  are  not  in  any 
sense  of  his  own  manufacture.  They  are  quoted  entirely  from 
the  only  authoritative  sources.  The  writer  is  not  advancing 
"estimates"  or  evolving  theories  of  his  own.  He  has  but 
collated  and  laid  before  the  reader  the  facts  as  they  are 
found  in  these  various  official  documents,  and  which,  as  facts, 
are  not  open  to  question,  leaving  the  public  to  use  its  own  judg- 
ment in  passing  upon  the  significance  of  those  facts. 


"Take  nothing  for  granted  upon  the  hare  authority  of  the 
author ;  but  weigh  and  consider,  in  your  own  mind,  the  proba- 
bility of  the  facts  and  the  justness  of  the  reflections.  Con- 
sult different  authors  upon  the  same  facts,  and  form  your 
opinion  upon  the  greater  or  less  degree  of  probability  arising 
from  the  whole." 


OUR  RAILROADS. 


The  railroads  of  the  world  are  to-day  worth  from  $25,000,000,- 
000  to  $30,000,000,000.  This  probably  represents  one-tenth  of  the 
total  wealth  of  civilized  nations  and  one-quarter,  if  not  one-third 
of  their  invested  capital.  It  is  doubtful  whether  the  aggregate 
plant  used  in  all  manufacturing  industries  can  equal  it  in  value. 
The  capital  engaged  in  banking  is  but  a  trifle  beside  it.  The 
2vorld's  ivhole  stock  of  money  of  every  kind— gold,  silver  and 
paper— would  purchase  only  a  third  of  its  railroads. — A.  T.Hadley 
in  ''Railroads  in  Their  Business  Relations." 


In  the  above  paragraph  Professor  Hadley  places  before  the 
mind,  in  a  striking  and  picturesque  form,  the  magnitude  of  the 
railroad  interests  of  the  world.  As  his  words  were  written  some 
years  ago,  however,  the  higher  of  the  two  figures  which  he  gives 
may  safely  be  taken  as  the  nearer  to  the  truth  to-day. 

Professor  Henry  C.  Adams,  the  official  statistician  to  the 
Interstate  Commerce  Commission,  in  his  second  annual  report, 
advance  sheets  of  which  have  been  distributed,  though  the  full 
report  has  not  yet  been  issued,*  says  that  on  June  30,  1889,  the 
number  of  miles  of  railroad  in  the  United  States  was  157,758. 
The  aggregate  capitalization  and  funded  debt  of  this  mileage 
was  $8,573,000,000, 

The  total  railroad  mileage  of  the  world  has  been  calculated 
to  be  361,886  miles.f  The  United  States  contain,  therefore, 
approximately  three-sevenths  of  the  railroad  mileage  of  the  world. 

It  is  a  remarkable  fact  that  until  two  years  ago  the  govern- 
ment of  this  country  had  not  provided  any  adequate  machinery 
for  the  collection  and  presentation  of  the  statistics  relating  to 

•The  full  report  has  this  week  been  issued,  November  10th,  1890. 
fKeport  to  the  United  States  Department  of  Agriculture  on  "the  Substitution 
of  Metal  for  Wood  in  Railroad  Ties,"  p.  292. 


lO  OUR    RAILROADS. 

these  vast  interests.  Almost  all  the  governments  of  the  world 
had  seen  the  necessity  of  doing  this  and  had  entered  upon  it, 
but  the  United  States  gave  it  no  attention.  There  has  been  no 
way  by  which  the  truth  of  the  railroad  question  in  its  larger 
aspects  could  be  arrived  at.  The  interested  politician  or  the 
railroad  attorney  has  been  able  to  advance  what  statements  he 
pleased  without  fear  of  refutation,  as  there  was  no  official 
authority  on  which  any  statement  in  refutation  could  be  based. 

The  twentieth  section  of  what  is  generally  known  as  the  Inter- 
state Commerce  Act  authorizes  the  Interstate  Commerce  Com- 
mission "  to  require  annual  reports  from  all  common  carriers 
subject  to  the  provisions  of  this  act,"  and  further  provides  that 
such  reports  "  shall  show  in  detail  the  amount  of  capital  stock 
issued,  the  amounts  paid  therefor  and  the  manner  of  payment  for 
the  same;  the  dividends  paid,  the  surplus  fund,  if  any,  and  the 
number  of  stockholders  ;  the  funded  and  floating  debts  and  the 
interest  paid  thereon ;  the  cost  and  value  of  the  carrier's  prop- 
erty, franchises  and  equipment ;  the  number  of  employes  and 
the  salaries  paid  each  class  ;  the  amounts  expended  for  improve- 
ments each  year,  how  expended,  and  the  character  of  such  im- 
provements ;  the  earnings  and  receipts  from  each  branch  of 
business  and  from  all  sources  ;  the  operating  and  other  expenses  ; 
the  balances  of  profit  and  loss ;  and  a  complete  exhibit  of  the 
financial  operations  of  the  carrier  each  year,  including  an  annual 
balance  sheet." 

In  his  first  report,  issued  in  the  spring  of  1889,  the  statistician 
to  the  commission  himself  commented  upon  the  curious  absence 
of  information  up  to  that  date:  * 

"  The  length  of  line  (in  the  United  States)  on  June  30,  1888, 
was  152,000  miles,  and  the  property  based  upon  it  did  not  fall 
far  short  of  $9,000,000,000.  The  gross  earnings  on  this  prop- 
erty for  the  year  preceding  were  nearly  $930,000,000.  Passen- 
ger mileage  reached  the  enormous  figure  of  1,500,000,000, 
while  ton-mileage  of  freight  exceeded  60,000,000,000.        *  * 

*  *         An    industry  of  such    magnitude   must  of  its  own 

merit  arrest  public  attention,  but  when  it  is  recognized  that 
every  other  industry  in  the  land  is  dependent  for  its  highest 
success  upon  the  way  in  which  the  railways  are  conducted,  the 

•  Page  237. 


OUR    RAILROADS. 


M 


absence  of  trustworthy  and  comprehensive  statistics  on  railvva  y 
affairs  is  indeed  occasion  for  surprise." 

The  standard  authority  on  railroad  statistics  in  the  United 
States,  before  the  estabHshment  of  the  commission,  had  been 
Poor's  Manual  of  Railroads,  an  excellent  and  laboriously  com- 
piled work,  but  which  had  not  carried,  and  could  not  carry, 
however  accurate  it  might  be,  the  weight  which  will  hence- 
forward attach  to  the  official  reports  of  the  statistical  department 
of  the  Inter-state  Commerce  Commission.  As  a  matter  of  fact, 
a  comparison  of  the  results  arrived  at  in  Poor's  Manual  and  in 
the  reports  of  Professor  Adams  shows  that  the  former  might 
safely  have  been  trusted,  and  have  been  accepted  as  authori- 
tative, with  more  confidence  than  was  ever  extended  to  it.  Such 
divergence  as  there  is  between  the  conclusions  arrived  at  and 
the  figures  given  in  the  two  volumes  is  a  divergence  compara- 
tively of  small  detail.  The  following  comparison  shows  how 
nearly  they  coincide: 


Inter-state 
Com.  Commission. 


Miles  of  railroad I57  753 

Capital  stock "  *$4,251,190,719.00 

Funded  debt *4,321,856,023.00 

btock  and  debt  per  mile »55  898.00 

Percentage  of  unproductive  stock..  ;  '  61.67 

"  bonds..  18.19 


Poor's  Manual. 


160,544 

$4,495,099,318.00 

4,828,365,771.00 

58,077.00 

62.21 

18.73 


Whenever  possible,  in  the  following  pages,  the  figures  of  the 
Inter-state  Commerce  Commission  are  used  as  being  official. 
On  points  which  the  report  of  the  commission  does  not  touch, 
the  figures  o'i Poors  ManuaUre  used.  With  the  information  con- 
tained in  these  two  volumes,  supplemented  by  the  reports  of  the 
various  state  commissions,  it  is  possible  now  to  arrive  at  conclu- 
sions as  to  the  present  earning  power  of  railroads  in  the  United 
States,  and  in  the  Western  and  Northwestern  states,  which  are  not 
conjecture— as  virtually  all  conclusions  advanced  previously  to  the 
last  two  years  must  have  been— which  are  not  matter  of  esti- 
mate—which can  not  possibly  be  suspected  of  being  distorted 
by  prejudice  or  partiality. 


*On  153,385  miles  of  road  which  made  reports. 


12  OUR    RAILROADS. 

The  importance  to  the  public  interests  of  having  these  con- 
clusions of  fact  plainly  set  forth  and  established  cannot  easily  be 
overestimated.  No  intelligent  public  treatment  of  the  railroad 
problem  can  be  reached  without  such  knowledge.  With  such 
knowledge  once  in  the  possession  of  the  public — of  the  legis- 
lators, public  officials,  business  men,  and  writers  on  the  daily 
press — it  ought  not  to  be  difficult  to  arrive  at  such  an  adjust- 
ment of  the  rights  and  responsibilities  of  the  railroads  in  their 
relations  to  the  state  and  the  citizen  as  will  best  promote  the 
interests  of  the  country. 

To  quote  a  writer  on  a  daily  paper : — "The  people  do  not  pro- 
pose on  the  one  hand  to  suffer  themselves  to  be  wronged  by  any 
oppressive  or  unjust  acts  of  extortion  on  the  part  of  the  railroad 
companies;  nor,  on  the  other  hand,  do  they  propose  that  the 
railroad  companies  should  be  wronged  by  unjust  and  confisca- 
tory legislation.  What  they  want  is  simple  justice  for  themselves 
and  for  the  railroads.  That  is  all  they  want.  They  know  very 
well  that  hostile  legislation  which  seeks  to  destroy  the  value  of 
railroad  property  must  result  in  immense  harm  to  public  interests. 
They  do  not  want  to  place  their  interests,  therefore,  in  the  hands 
of  the  enemies  of  railroad  corporations — of  men  whose  only  aim 
is  to  cripple  and  destroy  them — but  of  men  who  are  broad 
enough  to  do  justice  to  both  the  people  and  the  railroads." 

The  people,  if,  as  one  party  claims,  the  corporations  are  enjoy- 
ing too  large  privileges  or  are  abusing  their  great  powers,  desire 
and  demand  such  legislation  as  will  secure  to  society  its  rights 
against  the  encroachments  of  monopoly.  And  if,  as  is  claimed 
on  the  other  side,  the  corporations  are  already  burdened  beyond 
the  limit  of  justice  and  beyond  the  point  where  the  earning  of 
reasonable  returns  upon  investment  is  possible,  then  the  people 
know  that  any  further  legislation  adverse  to  the  railroads  will 
and  must  injure  the  community  as  a  whole  out  of  all  proportion 
to  any  benefit  that  it  can  confer  on  any  one  class  of  the  people. 

What  is  the  situation,  then  ?  What  are  facts  ?  Is  there  need 
of  more  anti-railroad  legislation,  or  has  there  already  been  too 
much  ? 

Before  entering  into  a  discussion  of  the  figures  upon  a  consid- 
eration of  which  a  solution  of  the  above  questions  only  can  be 
reached,  it  is  worth  while  to  note  a  remark  of  the  Inter-state  Com- 


OUR    RAILROADS.  13 

merce  Commission's  statistician  included  in  his  first  report*  above 
referred  to.  Prof.  Adams,  more  than  any  other  man  in  America, 
had  had  the  opportunity  of  arriving  at  a  just  estimate  of  the 
financial  condition  of  the  railroads  of  America,  and  of  the  right 
attitude  of  society  towards  them.  The  conclusion  at  which  he 
arrived,  was  that  "it  is  more  than  likely  that,  if  the  facts  pertain- 
ing to  railroads  be  properly  collected,  massed  and  mterpreted, 
the  demand  for  a  very  considerable  increase  of  legislation  which 
would  otherwise  be  necessary  will  disappear." 

As  being  the  well  considered  judgment  of  the  statistician  of 
the  Inter-state  Commerce  Commission,  based  upon  the  first  ap- 
proximately complete  official  statement  of  the  condition  of  the 
railroad  properties  of  the  country  which  had  ever  been  collected, 
this  conclusion  is  significant. 

THE    RAILROADS   OF    THE     UNITED    STATES. 

We  have  quoted  above  the  figures  of  the  Inter-state  Commerce 
Commission  showing  that  the  railroad  mileage  of  the  whole 
country  on  June  30,  1889,  was  157,758  miles.  The  total  capital- 
ization and  funded  debt  of  all  roads  reporting,  viz.,  153.385 
miles,  were  $8,573,046,742.  This  is  an  average  of  stock  and 
debt  of  555,898  a  mile. 

The  great  question  to  be  settled,  then,  is,  does  this  immense 
capital  earn  too  large  revenues,  or  does  it  not  ?  The  considera- 
tion which  meets  us  at  the  very  outset  is  the  question  as  to  what 
actual  investment  of  capital  these  liabilities  represent.  What, 
in  fact,  is  the  amount — if  any — of  over-capitalization?  This 
matter  will  receive  more  attention  later  on.  For  the  present, 
let  us  see  what  the  returns  are  on  the  stock  and  bonds  them- 
selves. 

The  total  amount  of  money  paid  in  the  whole  country  as  divi- 
dends on  stock  in  the  year  1889,  was  ;$82, 110,198.  The  total 
amount  paid  as  interest  on  funded  debt  was  $213,173,672. 

The  dividend  ^payments  were  an  average  of  1.91  per  cent  on 
all  common  stock,  and  2. 11  per  cent  on  all  preferred  stock,  or 
an  average  of  1.93  per  cent  on  the  total  of  stock  of  all  kinds. f 

*Pafre  33. 

;  Statistics  of  RaiUv.-xys  of  the  Unitea  States  (Inter-state  Commerce  Cmrimission) 

p.  2'J. 


d 


14  OUR    RAILROADS. 

The  interest  was  an  average  of  4.9  per  cent  on  all  bonds.  The 
average  of  returns  on  all  securit"ies  was  3.43  per  cent. 

In  the  first  statistical  report  June  30,  1888,)  of  the  Inter- 
state Commerce  Commission  was  given  a  table*  of  all  classes  of 
stocks  and  bonds,  with  the  rate  of  dividend  or  interest  paid  on 
each.  Of  the  ^6,976,271,156  of  total  capital  and  debt  (on  120,- 
OCX)  miles  of  road),  ^2,500,000,000  were  in  1888  absolutely  un- 
productive. On  ;^2,500,ooo,ooo  worth  of  securities,  or  more 
than  one-third  of  all,  there  was  no  return  paid  at  all. 

In  the  second  report  (for  the  year  ending  June  30,  1889,)  a 
similar  table  is  given  which  shows  an  increase  in  the  amount  of 
these  unproductive  securities  of  over  ;^ 800,000,000.  The  total 
amount  of  stock  and  bonds  on  which  no  returns  were  paid  w^s 
i^3. 397. 291, 587.  Of  this  amount  ^2,621,497,932  were  stock  and 
over  ;^775,ooo,ooo  were  bonds — or  18,19  per  cent  of  all  the 
bonds  of  the  railroads  of  the  country  drew  no  interest,  and  61.67 
per  cent  of  the  stock  paid  no  dividends. 

Considerably  more  than  one-third,  very  nearly  two-fifths,  of 
the  entire  investment  in  the  railroads  of  the  United  States 
was  in  the  year  1889  absolutely  unproductive  of  revenue. 

In  the  year  1SS6  Poo/ s  Manual  showed  that  58.12  per  cent 
of  the  stock  on  all  lines  of  the  country  were  unproductive,  and 
10.88  per  cent,  of  the  bonds.  Since  then — that  is  in  three  years 
— the  increase  in  the  proportion  of  unproductive  securities  has 
been  3.55  per  cent,  of  the  whole  amount  of  stock,  and  7. 11  per 
cent,  of  the  whole  amount  of  bonds  of  the  country. 

The  last  edition  of  Poors  Mamuil,\  however,  for  the  year 
ending  June  30,  1889,  gives  the  following  table  of  the  percentage 
of  returns  on  the  railroad  investment  of  the  country: 


Year:                       1884 
Interest  on  bonds,  p.  ct...   -i.ee 

Dividends  on  stock 2.48 

Total    payments,    stock, 
bonds  and  debt B.52 

1885 
4.77 
2.02 

3.36 

1886 
4.75 
2.04 

3.26 

1887 
4.71 
2.18 

3  40 

1888 
4.35 
1.77 

3.03 

1889 
4.38 
1.77 

3.07 

This  is  to  say  that  during  three  years  the  decrease  in  income 
to  the  holder  of  securities  has  been  1 5  per  cent.  Also  the  capi- 
tal stock  and  debt  per  mile  of  road  have  decreased  in  the  same 


•Second  annual  report  of  the  Inter-state  Commerce  Commission,  p.  254. 
t  Poor's  Manual  of  Railroads  for  1890,  p.iv.    The  divergence  of  the  figures  of  the 
Manual  from  that  of  Prof.  Adams  has  already  been  commented  on. 


OUR    RAILROADS.  1$ 

length  of  time  from  $59,391  in  1884  to  '$S^y977  i"  1889.  If  the 
stock  and  debt  per  mile  of  road  were  as  great  to-day  as  they 
were  six  years  ago,  the  total  liabilities  of  the  railroads  of  the 
country  would  be  two  hundred  million  dollars  greater  than  they 
are,  or  $199,351,376,  and  the  percentage  of  returns  would  be 
proportionately  smaller  than  even  is  the  case. 

With  nearly  three  and  one-half  billions  of  securities  entirely 
unproductive  of  revenue,  it  is  not  surprising  that  the  statistician 
of  the  Interstate  Commerce  Commission  should  ask,  "  what  is 
the  meaning  of  it?  " 

Here,  then,  we  have  seen  that  more  than  one-third  of  the 
railroad  stock  and  bonds  are  unproductive,  and  that  the  average 
of  returns  in  all  is  3.4  per  cent.  The  question  is,  is  this  a 
condition  which  shows  an  unreasonable  rate  of  profit?  Is 
this  a  larger  revenue  than  the  ordinary  business  man — merchant, 
banker,  farmer  or  manufacturer — expects  to  make  or  does  make 
upon  the  capital  invested  in  his  business  ?  Is  it  larger  than  the 
law  allows  as  reasonable  interest? 

Now,  touching  for  a  moment  on  the  subject  of  over-capi- 
talization, let  us  see  how  this  showing  compares  with  that  of 
the  railroads  in  other  countries. 

The  total  of  stock  and  debt  on  all  lines  in  this  country  is 
shown  by  the  statistician  of  the  Inter-state  Commerce  Commis- 
sion, as  already  noted,  to  be  *$ 5  5,898  a  mile. 

In  Great  Britain,  the  average  is  $193,000  a  mile.  While  in 
this  country  1 50,000  miles  of  road  have  to  earn  returns  on  eight 
and  one-half  billions,  in  Great  Britain  20,000  miles  have  to  earn 
returns  on  nearly  four  billions.  And  they  do  earn  returns  of 
4.07  per  cent.,  as  against  the  3.43  per  cent,  in  this  country. 

And  while  the  capitalization  per  mile  in  this  country  is  only 
one-fourth  that  of  Great  Britain,  it  is  two-fifths  that  of  the  rail- 
roads of  France,  and  about  one-half  that  of  the  railroads  of 
Germany. 

But  the  comparison  with  the  railroads  of  .European  countries 
may  not  be  a  fair  one  as  the  conditions  are  so  different.  There 
are  other  countries,  however,  wher^  the  analogy  is  closer  and 
with  which  a  comparison  may  fairly  and  instructively  be  drawn. 

Turning    to    Australia,   in  New    South   Wales  the    govern- 


'This  does  not  include  "current  liabilities,"  but  only  funded  debt. 


1 6  OUR    RAILROADS. 

ment  has  owned  the  railroads  from  the  very  first.  Here,  if  any- 
where, there  should  have  been  a  chance  for  cheap  railroad 
construction.  "The  country  offered  no  serious  obstacles.  The 
land  was  to  be  had  cheap.  No  special  effort  was  made  to 
avoid  grades  by  cuttings  or  tunnels.  The  lines  were  not  con- 
structed for  heavy  traffic  or  hard  usage.  There  are  practically 
no  fast  trains.  Only  79  miles  out  of  a  total  of  2,200  are  double 
track."*  .Yet  in  spite  of  all  these  advantages,  the  average  cost 
per  mile  of  road  in  New  South  Wales  is  given  as  ^68,000  against 
$55,898  a  mile  in  this  country. 

In  Victoria, t  the  "  total  spent  in  construction"  has  been  an 
average  of  $70,900  a  mile.  The  returns  on  this  for  the  year 
were  3.73  per  cent.  The  commissioners  explain,  however,  that 
a  large  portion  of  this  expenditure  was  on  uncompleted  lines 
not  yet  operated,  and  the  average  of  returns  on  all  capital  in- 
vested in  completed  lines  was  4.40  per  cent.  The  railroads  here 
are  all  built  directly  by  the  government  and  owned  by  the 
government.  All  contracts  for  construction  are  let  to  the  lowest 
bidder,  and  no  such  accusation  as  that  $70,900  is  not  the  lowest 
possible  figure  at  which  the  roads  could  be  built  has,  we  believe, 
ever  been  made. 

Turning  then  to  India,|  the  16,300  miles  of  railroad  on  the 
Indian  peninsula  cost  to  construct  $81,085  a  mile,  as  against 
$55,898  in  this  country.  In  the  year  1888  the  railways  of  India 
earned  5.32  per  cent.,  and  in  the  year  ending  May  20th,  1890, 
they  earned  4.93  per  cent,  on  their  investment,  as  against  3.43 
per  cent,  in  the  United  States. 

It  should  be  remembered  that  in  all  these  countries  both  the 
construction  and  operation  of  the  railroads  are  conducted  either 
more  or  less  directly  under  governmental  supervision  or  under 
immediate  government  ownership.  The  possibility  of  inflation 
of  capital  by  individuals  and  corporations  in  most  of  them  does 
not  exist.  The  figures  given  above  are  the  figures  of  actual 
cost  and  as  such  are  not  open  to  question.     At  the  same  time, 


•It  should  perhaps  be  explained  that  the  figures  of  mileage,  viz..  157,758  as  the 
total  of  the  U.  S.,  do  not  include  anything  but  main  track.  It  is  the  mileage  of 
road,  not  of  tracks.  There  are  over  50,000  miles  of  second  and  third  and  fourth 
tracks,  of  spur  and  side  tracks,  of  which  no  account  is  made  in  any  calculations. 

t  Report  of  the  Victorian  Railway  Commissioners  for  the  year  ending  Jime  30th, 
1889. 

t  Administration  Report  of  the  Railways  of  India  for  the  year  1889. 


OUR   RAILROADS.  1 7 

with  very  much  larger  capitalization  or  investment  to  earn 
returns  upon,  the  rate  of  returns  earned  is  also  larger.  This  is 
achieved  by  the  sole  plan  of  charging  higher  rates.  It  is 
impossible  here  to  give  a  detailed  comparison  of  rates  in  this 
country  and  in  others,  but  it  may  be  stated  generally  that  while 
in  some  countries  the  rates  of  third  (or  whatever  may  be  the 
lowest)  class  of  passenger  travel  are  lower  than  the  passenger 
rates  in  this  country,  all  other  rates,  both  passenger  and  freight, 
are  higher.* 

Let  us  now  turn  from  the  country  at  large  to  the  West,  South- 
west and  Northwest,  and  see  how  our  railroads  here  compare 
with  those  in  the  Eastern  and  Northern  states  in  their  capitaliza- 
tion and  earning  power. 

THE    RAILROADS   OF   THE    WEST. 

The  Inter-state  Commerce  Commission  has  made  no  com- 
parison of  different  states  or  sections  of  the  country.  The 
following  figures  are  from  Poor's  Manual  for  the  year  ending 
June  30th,  1889.  The  statement  of  capitalization  and  debt  per 
mile  of  road  on  the  lines  of  the  country  grouped  geographically 
is  as  follows : 

Capitalization  and 

debt  per  mile 

of road 

New  England  group $56,4-22 

Middle  group 119,121 

Central  Northern  group 52,073 

South  Atlantic  group 40,041 

Gulf  and  Mississippi  Valley  group 52,691 

Southwestern  group 45,063 

Pacific  group 59,927 

Northwestern  group 48,319 

The  average  for  the  whole  country  has  been  said  to  be 
+$58,077,  so  that  the  capitalization  and  debt  of  the  Northwestern 
lines  is  less  than  the  average  throughout  the  country  by  nearly 

•The  average  of  rates  charged  in  England  to-day  is  more  than  double  the  aver- 
age in  the  United  States.  The  latest  Act  of  Parliament  in  which  an^-  specific  rate 
is  provided  for  transportation  is  that  of  1883,  in  which  it  is  provided  that  govern- 
ment material  and  ^' War  Office  Stores"  shall  be  transported  at  a  charge  not 
exceeding  four  cents  a  mile.  The  average  of  earnings  per  ton  per  mile  in  the  United 
States  last  year  was  0.97  cents.  The  latest  act  in  England  fixing  passenger  rates 
provides  for  a  maximum  of  6  cents  for  first  class,  4  cents  for  second  class,  and  2Vi 
cents  for  third  class.  The  average  in  the  United  States  for  the  j-ear  1889  was 
2.17  cents. 

t  According  to  the  Inter-state  Commerce  Commission,  §55,898. 


I  8  OUR    RAILROADS. 

$10,000  per  mile,  or  $9,758.     The  capitalization  and  debt  of  the 
Southwestern  lines  is  $13,000  a  mile  below  the  average. 

Having  thus  much  smaller  investment  (or  liabilities)  to  earn 
returns  upon,  it  might  reasonably  be  supposed  that  the  percent- 
age of  returns  would  be  larger  than  the  average.  As  a  matter 
of  fact  Poor's  Manual  shows  that  the  average  payment  on  the 
capital  stock  and  debt  of  the  Northwestern  lines  was  in  the  year 
1889  only  2.71  per  cent. — as  against  *3.07  percent,  for  the  country 
at  large — and  on  the  Southwestern  lines  only  2.16  per  cent. 

If  we  analyze  these  figures  still  further,  we  come  to  facts  yet 
more  significant. 

It  is  obvious  and  well  understood  that,  when  earnings  are 
reduced  below  what  may  be  called  the  line  of  normal  prosperity 
and  before  actual  bankruptcy  is  reached, 'the  burden  of  loss  must 
fall  principally  upon  the  stockholders.  The  operating  expenses 
have  to  be  paid.  Economy  and  retrenchments  can  reduce  them 
to  a  certain  extent,  but  the  limit  of  elasticity  is  soon  reached. 
Similarly  with  the  fixed  charges, — taxes  and  the  interest  on 
bonds  must  be  paid  if  the  money  to  do  it  can  possibly  be  ac- 
quired or  very  disagreeable  consequences  will  ensue.  The  real 
index  to  the  prosperity  of  any  given  group  of  railroads — the 
evidence  as  to  what  they  are  earning  above  the  necessaries  of 
life — is  to  be  sought  in  the  dividend  payments.  The  average 
dividend  payment  on  stock  of  the  Northwestern  lines  in  1889 
was  0.49  per  cent,  or  less  than  one-half  of  one  per  cent,  against 
an  average  of  1.77  per  cent,  over  the  whole  country.  The 
total  amount  of  this  capital  stock  on  all  the  Northwestern  lines 
was  $409,208,838,  Any  person  who  was  so  fortunate  as  to 
have  a  fortune  of  $100,000  worth,  face  value,  of  that  stock,  in 
the  year  1889,  received  on  nt  as  an  income  to  live  upon  just  $490. 

On  the  Southwestern  lines  the  average  dividend  payment  on 
stock  was  0.72  per  cent.,  or  something  less  than  three-quarters 
of  one  per  cent.  The  total  amount  of  stock  on  this  group  of 
lines  was  $693,610,736.  A  fortune  of  $100,000  of  that  stock 
produced  $720  as  an  income. 

The  combined  mileage  of  these  two  groups  was  51,430  miles, 
almost  exactly  one-third  of  all  the  railroad  in  the  country.  The 
total  amount  of  their  combined  dividend  payments  was  less  thaa 


•According  to  the  Inter-state  Commerce  Commission,  3.40  i>er  cent. 


OUR    RAILROADS. 


19 


one-eleventh  of  that  paid  in  the  whole  country,  or  in  proportion 
of  7  to  7g]4. 

The  New  England  group  of  lines,  with  only  6,926  miles  of 
road,  paid  in  dividends  just  50  per  cent,  more  money  than  did 
the  combined  Northwestern  and  Southwestern  groups,  with 
51,430  miles  of  road. 

The  Middle  group  of  lines  include  19,243  miles  of  road.  The 
capitalization  of  these  19,243  miles  was  almost  exactly  the  same 
as  the  capitalization  of  the  51,430  miles  of  road  in  the  combined 
Northwestern  and  Southwestern  groups,  viz:  ^1,090,580,000, 
and  the  amount  of  money  paid  in  dividends  was  almost  precisely 
four  times  as  large. 

In  1888  "the  average  percentage  of  dividends  paid  on  rail- 
roads in  New  England  in  1888  was  4.56  per  cent,  in  the  North- 
western states  0.52  per  cent.  This,"  remarks  Pool's  Manual, 
"  shows  the  difference  between  the  results  produced  by  Eastern 
and  Western  state  legislation  relative  to  railroads." 

But  these  comparisons  might  be  carried  on  almost  indefinitely, 

showing    results  fully   as  startling — for  they  are  startling as 

these  at  every  turn.  The  temptation  to  continue  them  is  very 
great,  for  these  facts  will  be  something  of  a  shock  to  the  average 
reader  who  has  been  accustomed  to  hear  only  the  socialistic  or 
granger  misrepresentation  of  the  railroad  question,  and  they  can 
hardly  be  too  distinctly  stated  or  in  too  many  forms. 

One  more  statement  on  this  line,  however,  is  all  that  we  will 
make. 

On  the  lines  in  the  Northwestern  group  in  the  year  1889,  over 
80  per  cent,  of  the  stock  was  absolutely  unproductive,  (against 
61.67  per  cent,  for  the  country  at  large.)  That  is  to  say,  that  of 
the  $409,000,000  of  stock  in  these  lines,  the  holders  of  ^327,- 
000,000  derived  no  income  whatever  from  their  investment. 

Whether  or  not  there  is  need  of  legislation  to  further  reduce 
these  inordinate  profits,  is  a  question  for  the  public  to  decide. 

Nor  was  this  lamentable  showing  in  any  way  to  be  attributed 
to  faults  in  the  management  of  the  roads.  So  far  from  that 
being  the  case,  it  is  a  curious  fact  that  in  no  other  group  were 
the  operating  expenses  cut  down  to  so  low  a  basis  as  in  the 
Northwest.  Owing  to  extraordinary  conditions  which  render 
the  operation  of  some  of  the  lines  in  the  Southwest  very  expen- 


20  OUR    RAILROADS. 

sive,  especially  in  the  mountain  sections,  the  showing  for  the 
Southwestern  group  is  not  as  good  as  that  of  the  Northwestern. 
Here  is  a  table  giving  the  percentage  of  operating  expenses  to 
gross  earnings  for  the  year  1889  of  all  the  various  groups  : 

PER   CENT. 

New  England  group 72.01 

South  Atlantic  group 71.91 

Southwestern  group 71.88 

Central  Northern  group 68.16 

Middle  group. 66.39 

G.  &  M.  Y.  group 65.92 

Pacific  group 64.61 

Northwestern  group 64-. 57 

This  calculation,  viz.,  the  percentage  of  the  gross  earnings 
which  are  consumed  in  operating  expenses,  is  the  standard  by 
which  tjie  ability  and  economy  of  the  management  of  a  given 
road  are  most  commonly  measured.  If  the  percentage  is  too  great 
it  shows  that  the  management  is  either  paying  too  much  to  get 
its  business,  or  else  is  v/asting  money  in  handling  it.  And  we 
can  readily  see  how  important  this  showing  is,  by  making  a 
comparison  of  the  above  figures. 

We  will  not  take  an  extreme  instance,  but  will  take  the  Cen- 
tral Northern  group,  the  68.16  per  cent,  of  w^hich  is  approxi- 
mately half-way  between  the  lowest  proportion,  64.57,  ^nd  the 
highest,  72.01.  The  difference  between  the  figures  of  the  North- 
western group,  64.57,  and  those  of  the  Central  Northern  group, 
68.16,  is  3.59  per  cent.  The  gross  earnings  of  the  Northwestern 
group  were  $84,056,412;  and  3.50  per  cent,  of  that  is  $2,941,974. 
If  the  managements  of  the  Northwestern  roads  had  spent  in 
operating  expenses,  therefore,  as  large  a  proportion  of  their  gross 
earnings  as  did  the  managements  of  the  Central  Northern  group 
the  item  of  operating  expenses  would  have  been  increased  by 
$2,941,974,  which  must  have  come  from  somewhere  else.  The 
stockholders  would  have  suffered  first.  But  the  gross  amount 
of  money  paid  in  dividends  on  stock  of  the  Northwestern  group 
in  the  year  only  amounted  to  $1,985,531.  So  that,  to  make  up 
that  $2,941,979,  that  poor  one-half  of  one  per  cent,  which  was 
paid  as  dividends  would  have  had  to  be  entirely  wiped  out,  and 
the  companies  would  still  have  been  nearly  a  million  dollars — or 
$956,443 — short  of  meeting  their  expenses.  In  which  case  some- 
body must  have  gone  into  bankruptcy. 


OUR    RAILROADS.  21 

Now  from  these  figures  there  are  two  conclusions  of  fact  to  be 
drawn. 

In  the  first  place  this  extraordinary  economy  of  operation  in 
the  Northwestern  lines  is  only  attained  at  the  cost  of  great  hard- 
ship to  the  employes.  To  make  the  above  showing,  forces  had 
to  be  reduced,  wages  cut  and  hours  shortened  to  an  unparalleled 
degree.  This  point  is  of  so  much  importance  that  it  will  be 
referred  to  again,  but  meanwhile  it  should  be  noted  that  in  the 
execution  of  these  economies  the  numbers  of  track- men  and 
yard-men  and  train- men  have  been  so  reduced  that  what  is 
known  as  the  "danger  line"  of  operation  has  long  ago  ceased  to 
be  regarded,  and  inasmuch  as  the  safety  of  travel  is  thereby 
imperilled,  the  general  public  is  hardly  less  interested  in  this 
than  are  the  employes  themselves. 

The  second  fact  to  be  observed  is  this :  We  have  seen  that 
with  a  smaller  indebtedness  and  greater  economy  in  operation, 
the  railroads  of  the  Northwest  are  still  less  productive  as  an  invest- 
ment than  those  of  any  other  portion  of  the  country.  And  when 
this  question  of  the  productiveness  of  the  railroads  is  regarded 
by  outside  capitalists,  as  it  is  regarded,  as  the  best  indication  of 
the  general  prosperity  of  any  section  of  the  country,  this  show- 
ing is  one  which  cannot  do  anything  but  very  seriously  injure 
the  reputation  of  the  Northwest  in  the  financial  circles  of  the 
East  and  of  Europe. 

DIFFERENT   WESTERN    STATES    COMPARED. 

In  the  first  edition  of  this  pamphlet  the  author  said  :  "A  word 
should  be  said  here  on  the  difficulty  of  arriving  at  a  correct 
statement  of  earnings,  expenses  or  dividends  on  lines  within  any 
given  state.  Of  course  a  railroad  company,  operating  a  system 
in,  perhaps,  half  a  dozen  different  states,  does  not  and  could  not 
keep  the  accounts  of  the  lines  in  each  state  distinct  from  the 
lines  in  the  other  states.  For  the  purposes  of  state  commissions, 
therefore,  it  is  customary  to  make  an  approximate  division  of 
these  matters  on  a  mileage  basis.  That  is  to  say  that  the  com- 
pany reports  upon  its  whole  system.  That  may  be  5,000  miles 
in  length.  Of  this  amount  perhaps  1,000  miles  or  one-fifth  of 
the  whole  may  be  within  the  state  limits.  To  obtain  the  propor- 
tion of  earnings,  expenses  and  dividends  on  the  lines  within  the 


22  OUR   RAILROADS. 

State,  the  whole  earnings,  expenses  and  dividends  are  divided  by- 
five.  The  result  is,  of  course,  only  approximately  accurate,  and 
sometimes  may  give  rise  to  very  considerable  misrepresentation. 

"An  instance  of  this  may  be  seen  in  the  statement  of  dividends 
and  interest  on  Minnesota  lines  given  above.  The  entire  amount, 
the  state  commissioners'  report  shows,  paid  in  dividends  on  lines 
within  the  state  in  1 887  was  $2,070,000.  This  was  figured  on  a 
mileage  basis.  Of  this  sum  nearly  $400,000  was  estimated  as  paid 
by  the  lines  of  the  Chicago  &  North-western  Railway  Company  in 
Minnesota.  As  a  matter  of  fact  the  lines  of  the  Chicago  & 
North-western  Railway  in  Minnesota  were  absolutely  unpro- 
ductive. The  dividends  and  interest  paid  by  that  company  in 
1 887  were  all  earned  on  other  parts  of  its  system,  while  the  Winona 
&  St.  Peter  showed  an  actual  deficit  (short  of  paying  operating 
expenses  and  fixed  charges)  of  $450,000.  This  had  to  be  made 
up  out  of  the  surplus  earnings  on  other  parts  of  the  company's 
line,  so  that,  instead  of  the  people  of  Minnesota  being  taxed  to 
pay  $400,000  of  dividends  on  thd  company's  lines,  the  people  of 
other  states  had  to  come  forward  and  make  up  the  $450,000  of 
the  carrier's  expenses  which  the  people  of  Minnesota  failed  to 
pay  to  the  carrier  for  conducting  their  business. 

"This  would  make  a  very  material  difference  in  the  figures 
given  above.  It  would  increase  the  amount  of  non-productive 
stock  on  Minnesota  lines  and  would  decrease  the  rate  of  return 
below  3.06  per  cent.  But  the  mileage  basis  is  the  one  which  by 
common  consent  is  followed  in  various  states,  though  with  a  full 
recognition  of  its  inadequacy ;  and  it  seems  to  the  writer  better 
to  accept  the  official  figures  of  the  state  commission,  even  when 
obviously  open  to  criticism,  than  to  compile  his  own  statistics, 
which  would   certainly  be  criticised,  whether  accurate  or  not." 

Since  the  above  w^as  written  some  of  the  state  commissions, 
among  them  being  those  of  Minnesota,  Nebraska  and  Iowa, 
have  in  large  measure  abandoned  the  plan  of  attempting  to  so 
apportion  the  stock  or  debt  or  dividends  between  the  particular 
portions  within  and  without  the  limits  of  a  given  state.  The 
figures  now  are  given  "  for  the  Vhole  lines."  Similarly  Poor's 
Manual  has  abandoned  many  of  the  tables  showing  results 
according  to  states  which  appeared  in  earlier  editions.  The  plan 
of  division  into  groups  of  lines,  bunched  according  to  geograph- 


OUR    RAILROADS.  23 

ical  location,  is  unquestionably  the  most  natural  and  scientific. 
Results  so  arrived  at  are  certain  and  of  practical  comparative 
value.  Results  based  on  arbitrary  apportionments  by  state 
lines,  while  interesting  and  reasonably  approximating  the  truth, 
could  never  have  the  positive  and  demonstrable  exactness  which 
attaches  to  the  figures  that  we  have  quoted  so  far. 

It  will  doubtless  suggest  itself  to  the  reader  that  the  practice 
of  enacting  widely  different  statutes  relating  to  the  regulation  of 
common  carriers  in  neighboring  states  is  equally  absurd. 
The  endeavor  to  operate  the  two  ends  of  one  line  so  as  to  con- 
form to  two  entirely  different  sets  of  state  regulations  is  not  only 
unnecessarily  harassing  to  a  railroad  manager,  but  also  com- 
pels injustices  and  inequalities  in  the  treatment  of  the  public  on 
opposite  sides  of  the  dividing  boundary. 

The  annual  conventions  of  State  Railroad  Commissioners 
which  are  now  being  held  at  Washington  under  the  patronage 
of  the  Inter-state  Commerce  Commission,  will,  in  time,  do  a 
great  deal  towards  making  uniform  the  legislation  of  different 
states.*  But  what  is  most  needed  is  a  more  intelligent  under- 
standing of  the  railroad  question  by  state  legislators. 

Statistics  can  be  compiled  ad  libitum  from  the  reports  of  the 
various  state  commissions  to  show  that  the  condition  of  the 
railroads  is  deplorable  in  each  Western  state.  But  when  the 
condition  of  all  the  Northwestern  lines  is  as  set  forth  above,  it  is 
needless  to  say  that  those  parts  of  them  which  run  through 
Iowa  and  Minnesota  and  Nebraska  and  Wisconsin  are  all  alike 
unremunerative  property.  Certain  results  can  be  abstracted 
from  these  state  reports  which  have  a  value  of  their  own,  and 

*In  the  first  edition  of  this  pamphlet  attention  was  called  to  the  urgent  advisa- 
bility of  having  the  same  form  of  annual  report  adopted  by  the  various  state 
commissions  and  the  Inter-state  Commerce  Commission,  and  also  of  making  the 
fiscal  years  end  at  the  same  date.  The  folloviring  extract  from  a  letter  from  the 
statistician  of  the  Inter-state  Commerce  Commission  to  the  writer,  under  date  of 
September  25th,  1890,  will  show  how  much  progress  has  since  then  been  made  in 
these  directions:  "We  have  supplied  direct  from  this  office,  similar  to  the  Minne- 
sota form  sent  you  (completing  the  forwarding  on  23d  inst.),  state  editions  of  the 
1890  form  to  eighteen  states,  namely,  .\labama,  Arkansas,  Connecticut,  Florida, 
Georgia,  Iowa,  Kans9.s,  Kentucky,  Minnesota,  Mississippi,  Nebraska,  North 
Dakota,  Ohio,  Oregon,  South  Carolina,  South  Dakota,  Vermont  and  Virginia.  It 
should  be  said  further,  it  is  understood  in  this  office,  that  seven  other  states, 
namely,  California,  Illinois,  Massachusetts,  New  York,  Pennsylvania,  Rhode  Island 
and  Wisconsin,  though  not  furnished  by  us  with  the  1890  form,  arc  this  year  using 
forms  similar  to  that  of  the  Inter-state  Commerce  Commission,  thus  making  prac- 
tically twenty-five  states  in  which  the  interstate  form  has  been  adopted  out  of 
twenty-nine  states  having  railroad  commissions." 


24  OUR    RAILROADS. 

these  the  author  has  endeavored  to  state  as  concisely  as  possible. 

For  comparative  purposes  the  following  table  from  the  In.er- 
state  Commerce  Commission's*  report  may  be  interesting : 

SUMMARY   OF    RAILWAY  MILEAGE    IN    THE    UNITED    STATES 

BY    STATES    AND    TERRITORIES. 

Mileage  on 
State  or  Territory.  June  30,  1889. 

Alabama 3,034.57 

Arkansas 2,156.11 

California 4,250.27 

Colorado 4,127.42 

Connecticut 1,006.13 

Delaware 305.69 

Florida 2,282.82 

Georgia 4,094.43 

Illinois 9,829.48 

Indiana 6,045.87 

Iowa 8,320.39 

Kansas 8,770.01 

Kentucky 2,522.06 

Louisiana 1,535.25 

Maine 1,314.34 

Maryland 1,222.82 

IMassachusetts 2,072.76 

Michigan 6,783.59 

Minnesota 5,340.46 

Miss'ssippi 2,266.90 

Missouri 5,924.05 

Nebraska 5,012.00 

Nevada 927.87 

New  Hampshire 1,102.06 

New  Jersey 1,982.66 

New  York 7,680.11 

North  Carolina 2,654.54 

Ohio 7,797.15 

Oregon 1.503.61 

Pennsylvania 8.214.35 

Rhode  Island 214.63 

South  Carolina 2,118.41 

Tennessee 2,576.18 

Texas 8,347.84 

Vermont 1,012.54 

Virginia 2,821.11 

West  Virginia 1,231.03 

Wisconsin 5,384.63 

Alaska 

Arizona 1.096.83 

Dakota 4,472.85 

District  of  Columbia     '  30.57 

Idaho.... 844.70 

Indian  Territory 999.55 

Montana 1,821.05 

New  Mexico 1,324.51 

Utah 1.124.07 

Washington 1,356.82 

Wyoming 901.74 

Total 157J58.S3 


'Statistics  of  Railways  of  the  United  States,  pp.  10  and  11. 


OUR    RAILROADS.  2$ 

The  following  brief  statements  of  the  situation  in  the  different 
states  are  taken  from  the  latest  official  reports  of  the  respective 
state  commissions,  all  of  which,  with  one  exception,  are  for  the 
year  ending  June  30th,  1889  : 

MINMESOTA.* 

According  to  the  report  of  the  Railroad  Commissioners  of 
seventeen  companies  operating  lines  of  railroad  in  the  state  of 
Minnesota  during  the  year  1889,  eight  companies  showed 
deficits  and  failed  to  meet  their  fixed  charges  by  the  aggregate 
sum  of  ;S2, 555,768;  one  company  was  in  the  hands  of  a 
receiver;  three  companies  earned  their  expenses,  but  failed  to 
pay  any  dividends,  and  the  remaining  five  only  paid  dividends.* 
The  amount  of  these  dividends  paid  on  the  lines  in  the  state  was 
^1,564,000,  which  is  almost  one  million  dollars  less  than  the 
deficit  of  the  other  lines,  or  ;$99i,700. 

As  a  matter  of  fact,  however,  the  results  were  even  worse  than 
this,  as  one  of  the  companies  credited  with  a  dividend — viz.,  the 
Chicago  &  Northwestern — paid  that  dividend  with  money  earned 
on  lines  outside  of  the  state.  Its  lines  inside  the  state  limits 
were  operated  at  a  loss  of  nearly  half  a  million  dollars,  so  that 
the  real  results  of  the  year's  operations  were  nine  companies 
(not  counting  the  one  in  the  hands  of  a  receiver),  showing  an 
aggregate  deficit  of  three  million  dollars ;  and  only  four  com- 
panies paying  dividends,  aggregating  a  little  over  one  million 
dollars. 

lOWA.t 

Of  thirty-four  companies  making  reports  of  operation  of  lines 
in  the  state  of  Iowa,  seven  companies  paid  a  dividend  in  the 
year  ending  June  30,  1889,  and  twenty-seven  failed  to  do  so. 
Four  companies  were  operated  by  receivers,  and  sixteen  others 
showed  deficits  in  the  year's  business.  The  aggregate  shortage 
of  the  sixteen  companies  was  a  little  over  nineteen  hundred 
thousand  dollars, — $1,914,509.  The  aggregate  of  unproductive 
stock  (i.  e.,  stock  on  which  no  dividend  was  paid,)  on  the  whole 
lines  of  the  companies  reporting,  was  $117,695,574. 

The  number  of  stockholders  of  all  lines  was  15,350,  of  whom 
only  253  resided  in  Iowa. 

•Report  of  the  Railroad  and  AVarehouse  Commission  of  the  State  of  Minnesota, 
for  year  ending  June  30th,  1889,  pages  7  and  8. 

tReport  of  the  Railroad  Commissioners  of  Iowa  for  the  vear  1889. 


26  OUR    RAILROADS. 

As  in  the  case  of  other  western  states,  the  companies  which 
paid  dividends  were  the  large  corporations  operating  systems 
draining  immense  territories  and  with  terminals  in  Chicago  and 
other  large  cities.  The  seven  companies  were — the  Chicago, 
Rock  Island  &  Pacific;  the  Chicago  &  Northwestern, with  other 
parts  of  the  same  system,  viz.,  the-  Chicago,  St.  Paul,  Minne- 
apolis &  Omaha,  and  Sioux  City  &  Pacific ;  the  Chicago,  Mil- 
waukee &  St.  Paul;  the  Chicago,  Burlington  &  Quincy,  and  the 
Dubuque  &  Sioux  City,  (Illinois  Central  system).  No  company 
which  had  to  depend  on  Iowa  business  alone,  succeeded  in  paying 
a  dividend. 

The  average  of  capitalization  and  debt  per  mile  of  all  roads 
operating  in  Iowa,  was  ^38,069,  as  against  ^55,898  per  mile  as 
the  average  for  the  whole  United  States.  The  attitude  of  the 
state  authorities  and  railroad  commissioners  of  Iowa  towards 
railroads  is  too  well  known  for  it  to  be  necessary  to  remark 
here  that  the  commissioners  do  not  incorporate  in  their  report 
anything  which  might  tend  to  expose  the  forlorn  condition  of  the 
railroads  of  the  state,  unless  they  are  compelled  to  do  so.  Such 
admissions  as  they  do  make  are  evidently  sadly  against  their 
will ;  but  the  following  extracts  are  eloquent : 

"The  total  number  of  persons  employed  on  the  roads  in  Iowa, 
estimating  last  year  for  the  roads  not  reporting,  was  24,622;  the 
amount  paid  (as  wages),  $14,212,590.27.  Last  year  the  number 
was  30,236;  the  amount  ;$i5,6i9,4i7.i6.  The  causes  that  led 
to  this  reduction  were,  diminished  tonnage  on  inter-state  busi- 
ness, and  the  reduction  of  expenses  resulting  from  the  reduction 
of  the  number  of  trains,  and  the  economics  introduced  to  meet 
the  conditions"  (p.  12). 

"The  reduction  of  expenses  (i.  e.,  operating  expenses  for  the 
year)  of  $689,197.75,  which  is  partly  due  to  a  decrease  of  pas- 
senger train  service,  while  it  resulted  in  some  instances  in  public 
inconvenience,  se^ms,  on  the  whole,  to  have  been  an  advantage 
to  the  railroads  from  a  financial  standpoint"  (p.  9). 

"The  total  number  of  miles  of  railroad  in  operation  in  Iowa, 
*****  is  about  the  same  as  last  year,  although  some 
additional  road  has  been  constructed"  (p.  4).  "The  Sioux 
City  &  Northern  railway  company  has  constructed  a  road  to  the 
north  line  of  the  state.     This,  however,  was  not  in  operation 


OUR    RAILROADS.  2"] 

June  30,  the  end  of  the  fiscal  year.  The  fact  is  stated  here  as 
evidence  that  there  are  parties  who  are  still  willing  to  invest  in 
building  roads  in  the  state"  (p.  13), 

There  is  pathos  in  this  anxiety  of  the  commissioners  to  put 
the  best  face  upon  the  situation,  going  outside  of  the  period 
covered  by  their  report  to  find  evidence  (and  that  in  a  line  which 
was  built  only  as  part  of  the  whole  plan  of  development  of  the 
Great  Northern  system,  and  which  only  as  an  accident  enters 
Iowa  territory)  to  prove  that  there  are  "parties  who  are  still 
willing  to  invest"  in  railroad  properties  in  Iowa. 

NEBRASKA.* 

Of  eleven  railroad  companies  operating  lines  in  the  state  of 
Nebraska,  in  the  year  ending  June  30,  1889,  three  companies 
paid  a  dividend,  and  eight  companies  failed  to  do  so.  Of  those 
eight  companies,  three  showed  deficits  on  the  year's  operations, 
the  three  deficits  aggregating  ^875,329.  The  total  amount  of 
unproductive  stock,  i.  e.,  stock  on  which  no  dividends  were  paid 
during  the  year,  on  the  eight  roads  above-mentioned,  was 
^128,107,150.  The  average  of  capitalization  and  debt  of  all  of 
the  roads  operating  lines  in  the  state  was  ;^47,ioo  a  mile. 

But,  perhaps,  the  best  evidence  as  to  the  earnings  of  the 
Nebraska  railroads  is  furnished  by  the  Board  of  Transportation, 
not  in  its  annual  report,  but  in  a  special  report  made  in  June 
last. 

A  resolution  had  been  adopted  by  the  board  declaring  that 
"  rates  for  transportation  should  be  adjusted  and  regulated  to 
afford  no  more  than  a  reasonable  rate  of  income  upon  the 
capital  already  invested  in  the  construction  of  the  roads,  and, 
proceeding,  the  secretaries  were  instructed  to  investigate  the 
relations  existing  between  the  earnings  of  the  Nebraska  roads 
and  their  cost  of  construction,  and  so  determine  and  afford 
conclusions  as  to  the  need  of  alteration  in  the  existing  tariff 
rates."  Acting  under  this  resolution,  the  secretaries  of  the 
board  proceeded  to  make  investigations.    As  the  report  says : 

Your  secretaries  were  of  the  opinion  that  judgment  upon  the  matter  in 
hand  should  be  in  no  wise  influenced  by  the  brawling  assertions  of  design- 
ing agitators,  or  by  the  general  denials  ever  forthcoming  from  the  railroad 
representatives.      Equally  confident  was  the  feeling  that  no  consideration 

•Nebraska  Board  of  Transportation,  Annual  Report,  1889. 


28  OUR    RAILROADS, 

for  individual  or  party  political  results  should  weigh  in  the  judgment. 
The  matter  was  one  of  figures.  The  railroads  cost  certain  amounts, 
different  roads  varying  in  cost  under  varying  conditions.  Certain 
amounts  have  been  expended  since  their  construction  for  bettering  their 
condition  in  conformit}-  with  the  needs  of  a  gradually  increasing  traffic. 
The  total  of  the  two  items — first  cost  and  betterments — represent,  for  all 
practical  purposes,  the  cost  of  all  roads  placed  in  operation  within  a  half 
dozen,  or  say  ten  j'^ears  preceding.  *  »  *  *  f  },g  cost  of  Nebraska 
roads,  in  conjunction  with  the  earnings  therefrom,  after  deducting  the  cost 
of  operation,  enables  a  determination  of  the  annual  rate  of  income.  As  to 
the  allowable  rate  of  income  there  is  considerable  diversity  of  opinion.  It 
is  apparent  to  the  fair  minded  that  the  management  of  a  common  carrier 
should  not  be  hampered  by  the  state  in  impartially  directing  the  operations 
of  their  roads  to  the  end  of  earning  a  reasonable  return  upon  the  cost,  and, 
in  addition  thereto,  a  sum  sufficient  to  keep  the  roads  in  good  and  safe 
repair,  and  to  make  those  additions  from  time  to  time  required  for  the 
convenience  of  the  public.  »  *  *  Your  secretaries  are  of  the  opinion 
that  five  to  six  per  cent  per  annum  is  a  reasonable  rate  of  income  for  the 
purposes  set  forth,  and  that  seven  is  not  extortionate  or  excessive  for  the 
period  intervening  from  the  time  of  beginning  operations  on  a  newh'  con- 
structed road  in  a  country  but  partially  developed  to  that  time  when  an 
increase  of  traffic,  to  a  point  somewhere  near  the  road's  capacitj',  has 
brought  about  the  development  of  the  road  to  a  first  class  condition. 

On  this  basis  the  board  set  to  work  to  find  whether  or  not  the 
railroads  were  earning  any  such  sums  in  excess  of  a  reasonable 
income  as  would  justify  a  reduction  in  rates.  They  made  en- 
quiries as  to  the  cost  of  the  most  prosperous  lines,  and  they 
obtained  figures  which,  (with  the  exception  of  the  case  of  one 
line  which,  the  board  believes,  reported  its  indebtedness  instead 
of  its  cost,)  they  have  accepted  as  a  sufficiently  fair  statement 
of  the  actual  investment  upon  which  a  proper  interest  may  be 
regarded  as  a  reasonable  income. 

They  found  that  the  C,  St.  P.,  M.  &  O.  Ry.  earned  2.3  per 
cent  on  its  cost ;  that  the  Union  Pacific  leased  lines  earned  less 
than  2  per  cent  on  their  cost,  and  the  Burlington  lines  5.09  per 
cent  on  their  cost.  These  three  roads  include  the  greater  por- 
tion of  all  the  mileage  in  the  state.  On  the  results  so  arrived 
at  the  board  decided  that  the  roads  were  not  earning  more  than 
a  reasonable  income,  and  that  a  reduction  of  maximum  rates 
was  not  justified  by  the  conditions. 

THE   DAKOTAS.* 

Of  fourteen  companies  reported  as  operating  lines  in  Dakota 

•Railroad  Commissioners  of  the  Territory  of  Dakota,  Fifth  Annual  Report  for 
year  ending  June  30th,  1889. 


OUR    RAILROADS.  29 

(before  the  territory  was  divided  into  two  states),  five  companies 
paid  dividends  in  the  year  ending  June  30th,  1889,  and  nine 
companies  did  not.  The  dividend  payment  was  equal  to  1.7  per 
cent  on  all  stock ;  the  total  amount  of  unproductive  stock  (i.  e., 
stock  in  all  the  lines  of  the  companies  paying  no  dividends,) 
was  ^139,757,577.  The  five  companies  which  paid  dividends 
were  all  companies  owning  long  inter-state  lines,  viz.,  the  Chicago 
&  Northwestern,  the  Chicago,  Si.  Paul,  Minneapolis  &  Omaha, 
the  Chicago,  Milwaukee  &  St.  Paul,  the  St.  Paul,  Minneapolis  & 
Manitoba,  and  the  Dubuque  &  Sioux  City. 


Of  twenty-eight  companies  reporting  lines  of  railroad  operated 
in  the  state  of  Kansas  in  the  year  ending  June  30,  1889,  five 
companies  only  paid  a  dividend  and  twenty-three  companies 
failed  to  do  so.  Of  those  twenty-three  one  was  in  the  hands 
of  a  receiver,  and  eighteen  others  show  deficits  aggregating 
;^2. 875,673  !  Of  these  eighteen  companies,  thirteen  not  only 
showed  a  deficit  of  earnings  below  expenses  and  fixed  charges, 
but  failed  to  earn  their  operating  expenses  alone,  setting  taxes 
and  interest  on  bonded  debt  out  of  the  question. 

The  total  amount  of  stock  on  the  lines  of  the  twenty  three  com- 
panies which  failed  to  pay  a  dividend  was  ^173,507,736. 

The  five  companies  which  paid  dividends  were  the  Atchison, 
Tcpeka  &  Santa  Fe,  the  Chicago,  Rock  Island  &  Pacific,  the 
Kansas  City,  Fort  Scott  &  Memphis,  the  Missouri  Pacific  and 
the  St.  Louis  &  San  Francisco. 

The  average  of  capitalization  and  debt  per  mile  of  the  com- 
panies operating  lines  in  the  state  was  $49,500,  against  the  aver- 
age of  555,898  for  the  whole  United  States. 

MICHIGAN.f 

Of  twenty-eight  companies  operating  lines  in  the  state  of 
Michigan  in  the  year  1889,  ten  companies  paid  a  dividend  on 
their  capital  stock,  and  eighteen  failed  to  do  so.  Fifteen  com- 
panies out  of  the  eighteen  carried  forward  to  the  year  1890 
debit  balances  aggregating  54,861,654.71. 

•Seventh  annual  report  of  the  Board  of  Railroad  Commissioners  of  Kansas,  1889. 
t  Report  of  the  Railroad  Commissioners  of  Michigan,  1889. 


30  OUR    RAILROADS. 

There  were  6,41 1  miles  of  railroad  in  the  state,  with  a  capital- 
ization and  debt  of  $50,178  per  mile.  The  stock  was  held  by 
15,295  stockholders,  of  whom  only  106  resided  in  the  state. 

WISCONSIN. 

Of  twenty-two  companies  making  reports  of  lines  operated  in 
the  state  of  Wisconsin,  five  companies  paid  a  dividend  in  the 
two  years,  ending  June  30th,  1888,*  and  seventeen  companies 
failed  to  do  so.  Of  these  seventeen  companies,  nine  show  a 
deficit  (i.  e.  their  earnings  for  1888  were  insufficient  to  meet  their 
expenses  for  the  same  year),  the  aggregate  amount  of  the  eight 
deficits  being  not  quite  two  million  dollars,  viz.,  ;^l,994,5 18.03. 
The  total  amount  of  stock  in  the  whole  lines  of  the  companies 
which  failed  to  pay  any  dividend  was  ;^i 50,538,328.17. 

The  five  companies  which  paid  dividends  were  the  Chicago  & 
Northwestern,  the  Chicago,  Milwaukee  &  St.  Paul,  the  Chicago, 
St.  Paul,  Minneapolis  &  Omaha,  the  Milwaukee,  Lake  Shore  & 
Western,  and  the  Prairie  du  Chien  &  McGregor.  The  first  three 
have  already  been  mentioned  more  than  once  as  contributing  a 
large  part  of  the  dividend  payments  in  other  states.  Of  the 
remaining  two,  the  Milwaukee,  Lake  Shore  &  Western  paid  on 
dividends  ;^46o,ooo  on  a  total  capital  stock  of  ;^7,ooo,ooo,  or 
0.65  per  cent.  The  Prairie  du  Chien  &  McGregor  Railway 
is  a  pile  pontoon  bridge  across  the  Mississippi  river  between 
Prairie  du  Chien,  Wis.,  and  North  McGregor,  Iowa.  The  cost 
of  the  bridge  was  :$  100,000,  which  is  represented  by  $100,000 


•The  Railroad  Commissioner  of  the  state  of  Wisconsin  makes  a  biennial  report. 
The  report  for  the  two  years,  ending  June  30th,  1890  is  promised  (in  a  letter  from 
the  Commissioner  to  the  authorl  in  December  of  this  year.  The  figures  given  here 
are  from  the  third  biennial  report  for  years  ending  June  30th,  1888.  The  report  is  a 
pleasant  contrast  in  its  tone  to  the  reports  of  Iowa  and  some  other  states.  The 
Commissioner  is  moderate  and  careful  in  his  statements  and  conservative  in  his 
point  of  view.  The  relations  of  the  state  of  Wisconsin  towards  her  railroads  are 
pleasanter  than  those  of  any  other  Western  state.  The  state  made  an  experiment 
in  drastic  anti-railroad  legislation  some  years  ago,  when  the  Potter  Law  (simi- 
lar to  the  present  Iowa  and  Minnesota  statutes)  was  enacted.  It  was  quickly- 
repealed  however,  and  two  years  ago,  when  a  similar  bill  was  introduced  into  the 
legislature  by  Mr.  H.  A.  Taj'lor,  since  appointed  U.  S.  Commissioner  of  Railroads, 
the  people  of  the  state  protested  very  strongly  against  its  passage,  and  it  was 
hopelessly  defeated.  The  state  certainly  docs  not  suffer  by  its  attitude.  It  has  less 
friction  and  leas  litigation  with  the  railroads  than  any  other  Western  state.  It; 
receives  from  the  companies,  w^ho  pay  without  a  protest,  something  over  one 
million  dollars  a  year  in  taxes,  under  a  law  providing  for  a  graduated  tax  on  gross 
earnings.  The  average  freight  rate  per  ton  per  mile  in  the  state  was  0.96  cents  in 
1888,  and  the  Commissioner  of  Railroads  estimated  that  "the  sum  of  $17,328,161 
are  paid  to  labor  In  the  state  of  Wisconsin"  by  the  railroads  alone. 


OUR    RAILROADS.  31 

capital  stock.  In  the  year  1888,  the  property  earned  a  surplus 
of  $13,665  over  expenses;  but  the  forthcoming  report  of  the 
commissioners  will  show  that,  in  the  year  1889,  there  was  a 
deficit  of  $15,873.  It  also  failed  to  pay  a  dividend  in  the  year 
1887.  With  the  exception  of  the  0.65  per  cent,  paid  by  the 
Milwaukee,  Lake  Shore  &  Western,  therefore,  the  only  railroad 
properties  in  Wisconsin  which  can  be  classed  as  paying  prop- 
erties are  the  lines  of  the  three  companies  first  named  above. 

The  mileage  of  railroads  in  Wisconsin  was  5,278.25  miles, 
with  a  capitalization  and  debt  of  ^42,216  a  mile. 

MISSOURI.* 

In  the  year  1889  there  were  forty-eight  companies  operating 
lines  in  the  state  of  Missouri.  Of  these  the  commissioners  say 
(seep.  9):  "Ten  companies  earned  dividends  on  their  stock, 
some  of  the  dividends  being  paid  only  on  portions  of  stock. 
Thirty-eight  companies  earned  no  dividends."  Ten  companies 
show  a  deficit  of  earnings  below  expenses.  Three  companies 
were  in  the  hands  of  receivers.  The  average  of  stock  and  debt 
on  lines  in  the  state  was  *$ 5  5,606  a  mile.  The  amount  of  stock 
on  all  lines  of  the  companies  operating  in  the  state  which  failed 
to  earn  any  dividends  was  $164,040,800.  This  does  not  include 
that  portion  of  the  stock  on  which  no  dividend  was  paid  of 
companies  which  did  pay  dividends  on  some  portion  of  their 
stock,  as  mentioned  above. 

RESUME. 

There  is  one  further  statement  which  should  be  made  in  regard 
to  these  figures  of  the  different  states.  Attention  has  already 
been  called  to  the  fact  that  it  is  almost  without  exception  only 
the  large  inter-state  lines  operated  by  strong  companies  that  pay 
any  dividends.  In  many  cases  the  same  company  is  counted 
in  two,  three  or  even  four  different  states.  Taking  the  seven 
states  of  Iowa,  Minnesota,  the  Dakotas,  Wisconsin,  Nebraska 
and  Kansas,  collating  and  comparing  the  different  reports,  we 
find  that  there  are  in  all  ninety  different  companies  owning  lines 
in  them.     Of  these  ninety  companies  only  fifteen  paid  dividends 


•Report  of  the  Railroad  and  Warehouse  Commissioners  of  Missouri  for  the  year 
ending  Dec.  31,  1889. 


32 


OUR    RAILROADS. 


in  the  year  1889,  while  the  whole  stock  of  all  the  other  seventy- 
five  was  entirely  unproductive. 

In  the  year  1888,  out  of  650  operating  companies'^  in  the 
United  States,  eighty-three  paid  dividends  and  567  companies 
failed  to  do  so. 

Now,  in  connection  with  this  fact,  which  stands  out  so  con- 
spicuously, viz.,  that  only  the  long  lines  and  strong  systems  can 
earn  dividends — there  are  certain  considerations  which  must  be 
noticed. 

In  the  first  place,  paradoxical  as  it  may  seem,  this  state  of 
affairs  is  brought  about  under  pressure  of  legislation  which  is 
really  directed  chiefly  against  the  long  lines  and  not  so  much 
against  the  lesser  ones. 

Through  rates  and  the  rates  on  longer  lines  necessarily  affect 
a  very  much  larger  number  of  people  than  can  any  individual 
local  rates.  The  popular  pressure  for  their  reduction  is  corres- 
pondingly greater;  and  legislation  has  consistently  been  aimed 
primarily  at  the  reduction  of  through  rates  and  joint  rates.  But 
it  is  a  fact  with  which  railroad  men  are  familiar,  though  legis- 
lators do  not  appear  to  be  so,  that  a  reduction  of  rates,  or  of  a 
certain  class  of  rates,  on  any  one  line  will  necessarily  and  almost 
immediately  compel  a  similar  reduction  on  all  lines  in  that 
territory.  For  this  reason  the  laws  which  have  been  enacted  in 
some  states  graduating  maximum  rates  by  a  classification  of 
roads  according  to  earnings  are  entirely  futile.  Though  a  rail- 
road, which  only  earns,  say  ;g2,ooo  a  mile,  gross,  may  be  per- 
mitted by  law  to  charge  ten  cents  for  a  service  for  which  another 
road,  which  earns  $3,000  a  mile,  gross,  is  only  allowed  to  charge 
five  cents,  yet  this  permission  is,  in  practice,  almost  invariably 
useless  to  the  former  road.  Rates  in  any  territory  necessarily 
seek  the  same  level  and  the  lowest  level.  If  one  road  is  only 
charging  five  cents  for  a  given  service,  other  roads  in  the  same 
territory,  even  when  not  in  direct  competition,  must  come  to  the 
same  charge.  On  this  same  principle,  under  existing  com- 
mercial and  legislative  conditions,  anything  which  depresses 
rates  on  the  through  lines  and  long  hauls  must  similarly  reduce 
rates  on  the  shorter  lines  and  on  local  business.  The  small 
lines  have  been  compelled  to  adopt  the  same  low  schedules  as 


•Poor's  Manual. 


OUR    RAILROADS.  33 

the  strong  systems.  And,  this  condition  once  reached,  the  same 
law  applies  to  railroads  as  to  any  other  commercial  in.stitutions, 
viz.,  that  when  the  margin  of  profits  is  reduced  to  a  minimum 
it  is  only  the  strong  concerns,  with  the  economies  which  large 
business  and  common  management  make  possible,  which  can 
stand.  The  weaker  lines,  just  as  the  small  business  houses  in 
similar  periods  of  acute  competition  and  narrow  margins,  must 
fail  or  be  swallowed  up  by  the  larger  ones. 

It  is  obvious  that  these  conditions,  operating  so  powerfully  as 
to  forbid  any  but  the  fifteen  strongest  lines  out  of  ninety  to  earn 
any  profit,  would  naturally  have  a  tendency  to  increase  the 
number  of  such  strong  lines  by  extension,  by  consolidation,  by 
absorption,  or  by  traffic  agreements. 

CONSOLIDATION    AND    POOLING. 

Those  who  are  by  temperament  or  political  conviction  antago- 
nistic to  the  railroads,  constantly  deny,  firstly,  that  the  railroads 
are  failing  to  earn  reasonable  profits  to-day,  and  when  convicted 
of  error  in  this,  secondly,  that  if  they  are  so  failing,  it  is  their 
own  fault  for  building  too  many  lines.  Anti-railroad  legislation, 
they  say,  is  not  the  real  cause  of  the  present  de[)ression. 

Of  the  first  of  these  contentions  we  believe  the  facts  set  forth 
in  the  foregoing  pages  have  sufficiently  disposed.  Whether  the 
anti-railroad  laws  are  responsible  for  any  of  the  existing  con- 
ditions does  not  seem  to  be  the  thing  which,  on  the  theory  of 
probabilities  at  least,  is  arguable.  That  the  laws  exist  is  un- 
questioned. That  their  only  object  is  to  reduce  the  earning 
power  of  the  railroads  (or  their  charges,  which  is  the  same)  is 
equally  certain.  That  the  reduction  has  actually  taken  place 
and  continues  to  manifest  itself  wherever  these  laws  are  most 
vigorous  and  most  actively  enforced,  is  also  evident.  And  when 
we  see  a  man  shoot  at  a  duck  and  immediately  afterwards  find  that 
duck  dead,  it  is  not  an  unreasonable  conclusion  to  assume  that 
it  was  the  man  who  killed  it. 

Finally,  as  to  whether  the  railroads  themselves  are  at  fault  for 
building  too  many  lines,  it  is  an  undeniable  and  very  unfor- 
tunate fact  that  in  certain  sections  of  the  country,  and  between 
certain  points,  there  are  more  lines  than  are  needed  or 
than  the  traffic  warrants.     But  a  moment's  reflection   will    con- 


34  OUR    RAILROADS. 

vince  any  one  of  two  things,  (i)  That  the  last  person  who  is 
likely  to  desire  to  build,  or  who  should  be  held  accountable  for 
instigating  the  building  of  a  competing  line,  is  the  railroad  com- 
pany with  whom  the  new  line  comes  in  competition;  and  (2) 
That  the  only  power  which  can  prevent  over-construction  is  the 
people  themselves,  through  the  legislatures,  through  boards  of 
commissioners  or  through  the  courts.  Every  railroad  company 
in  existence  would  be  profoundly  grateful  if  it  was  to  be  guar- 
anteed against  competition  and  the  invasion  of  its  territory. 
But  the  same  people,  the  same  towns,  as  clamor  most  loudly 
for  lower  rates  will  most  enthusiastically  welcome  and  promote 
any  scheme  for  building  a  competitive  line,  which  will  divide  the 
traffic  and  make  reduction  of  rates  more  than  ever  incompatible 
with  reasonable  earnings. 

Now,  until  a  few  years  ago  the  railroad  companies  had  done 
their  best  to  protect  themselves  against  the  results  of  this  exces- 
sive competition  by  what  is  known  as  "pooling."  The  pool  was 
only  moderately  successful  as  a  device  for  obtaining  stable  rates  ; 
but  it  ivas  moderately  successful.  The  Inter-state  Commerce 
Act,  however,  forbade  pooling,  and  it  is  to  that  one  provision, 
more  than  any  other  existing  piece  of  legislation,  that  the  disas- 
trous conditions  of  the  last  few  years  are  due.  There  is,  we 
believe,  no  competent  authority  who  regards  that  provision  of 
the  Inter-state  Commerce  Act  as  a  wise  one,  and  who  would  not 
much  prefer,  for  the  public's  sake,  to  see  pools  legalized,  subject 
to  the  regulation  and  supervision  of  the  Inter-state  Commerce 
Commission  or  some  other  properly  constituted  body.  But 
the  general  public  are  not  yet  prepared  to  be  converted  on,  this 
point.  The  very  name  of  "pool"  is  evil  sounding  in  their  ears 
and  of  itself  provokes  antagonism.  But  there  is  a  force  now  at 
work  which,  it  is  to  be  trusted,  will,  before  long,  work  this  con- 
version.    If  not,  the  people  will  regret  it. 

In  a  recently  published  circular  letter,  Mr.  Aldace  F.  Walker, 
chairman  of  the  Inter-state  Commerce  Railway  Association,  says 
that  at  the  rate  at  which  earnings  are  now  being  reduced,  "Rail- 
way managers  will  soon  be  chiefly  receivers."  He  then  says  : — 
"  The  most  certain  method  of  escape  from  the  net  in  which 
the  roads  are  thus  enmeshed  would  be  to  physically  terminate 
competition.     Consolidations  might  be  made  which  would  pres- 


OUK    RAILROADS.  35 

ently  reduce  our  country  to  the  condition  of  France,  with  its  six 
non-competitive  railway  companies,  each  exclusive  in  its  terri- 
torial field.  This  is  not  what  the  public  expect  or  desire.  The 
course  has  been  entered  upon,  however,  and  progress  would  be 
rapid  but  for  the  peculiar  difficulties  in  the  way  of  each  indi- 
vidual transaction." 

We  believe  that  Mr.  Walker  is  right  in  assuming  that  the 
public  does  not  desire  to  see  such  consolidation  as  he  indicates. 
But  there  is  no  possible  room  for  question  that  it  is  just  that 
thing  which  is  "coming,  and  coming  with  a  rapidity  which  few 
railroad  men,  to  say  nothing  of  the  general  public,  appreciate. 

Some  idea  of  this  rapidity  may  be  gained  frcfm  the  statement 
that  since  June  30th  last  (which  is  to  say,  in  five  calendar 
months,)  8,000  miles  of  railroad,  formerly  independent  lines, 
have  become  merged  in  other  systems,  which  is  5  per  cent  of 
the  total  railroad  mileage  of  the  country.  But  on  June  30th  nearly 
one-half  of  the  railroad  mileage  was  already  included  in  ten  large 
systems.  More  than  one-tenth  of  all  the  independent  lines  of 
the  country  have  therefore  been  absorbed  in  the  last  five  months. 
Nor  does  the  public,  as  the  writer  believes,  at  all  grasp  the  sig- 
nificance of  the  rumors  of  vast  consolidations  of  Western  rail- 
road interests  which  have  been  so  conspicuous  in  every  issue  of 
the  daily  papers  for  the  past  few  weeks. 

To  bring  these  figures  nearer  home  and  to  take  a  local  in- 
stance which  will  be  easily  understood,  we  will  look  at  the  situa- 
tion in  Minnesota.  When  the  first  edition  of  this  pamphlet  was 
published,  less  than  two  years  ago,  there  were  ten  companies 
operating  lines  in  this  state  which  owned  more  than  250  miles 
of  road  each.     They  were 

The  Northern  Pacific. 
The  St.  Paul,  Minneapolis  &  Manitoba. 
The  Chicago,  Milwaukee  &  St.  Paul. 
The  Chicago  &  Northwestern. 
The  Chicago,  St.  Paul,  Minneapolis  &  Omaha. 
The  Chicago,  Burlington  &  Northern. 
The  Wisconsin  Central  Lines, 
The  Soo  Line. 
9.     The  Minneapolis  &  St.  Louis. 
10.     The  Chicago,  St.  Paul  &  Kansas  City. 


3b  OUR    RAILROADS. 

Since  then  the  following  changes  have  taken  place . 

1.  The  Northern  Pacific  has  leased  the  entire  Wisconsin 
Central  lines. 

2.  The  St.  Paul,  Minneapolis  &  Manitoba  has  been  consoli- 
dated with  the  Eastern  Minnesota,  Montana  Central  and  other 
roads  into  the  Great  Northern  Railway  Line. 

3.  The  Chicago,  Milwaukee  &  St.  Paul  last  month  absorbed 
by  purchase  the  Milwaukee  &  Northern. 

4  and  5.  The  Chicago  &  Northwestern  and  Chicago,  St. 
Paul,  Minneapolis  &  Omaha  have  formed  a  close  traffic  alliance 
with  the  Union  Pacific. 

6.  The  Chicago,  Burlington  &  Northern  has  been  absorbed, 
by  purchase,  into  the  Chicago,  Burlington  &  Quincy  system. 

7.  The  Wisconsin  Central,  as  already  stated,  is  operated  as  a 
branch  of  the  Northern  Pacific. 

8.  The  Soo  Line  is  now  in  process  of  amalgamation  or  con- 
junction of  management  with  the  Duluth,  South  Shore  & 
Atlantic,  the  control  of  both  being  now  in  the  hands  of  the  same 
parties. 

There  remain  (9)  the  Minneapolis  &  St.  Louis,  and  (10)  the 
Chicago,  St.  Paul  &  Kansas  City.  The  former  of  these  is 
already  a  part  of  the  Rock  Island  system,  and  is  moreover  in 
the  hands  of  a  receiver,  so  that  change  has  been  impossible,  and 
there  is  therefore  only  one  company,  viz.,  the  Chicago,  St.  Paul 
&  Kansas  City,  out  of  the  ten  which  were  in  Minnesota  less  than 
two  years  ago  which  has  not  since  then  played,  as  a  principal, 
a  part  in  some  large  consolidation,  merger  or  amalgamation. 

As  has  been  said,  neither  railroad  men  nor  the  public  realize, 
as  they  hear  of  the  individual  movements,  how  rapidly  the  pro- 
cess of  consolidation  is  going  on.  Possibly  the  above  showing 
may  help  to  place  the  situation  in  a  clearer  light.  Possibly  it 
will  help  the  public  to  understand  what  it  is  that  is  being  done 
by  the  present  legislative  efforts  to  enhance  competition  by  the 
prevention  of  pooling — what  sort  of  competition  it  is  that  is 
being  promoted. 

OVER-CAPITALIZATION. 

On  the  subject  of  over-capitalization  so  much  has  been  said 
by  the  political  opponents  of  the  railroads,  and  so  much  has 
been  written  by  good  authorities  on  the  railroad  question,  that 


OUR    RAILROADS.  37 

it  is  difficult  to  condense  any  comprehensive  statement  on  the 
subject  into  reasonable  limits.  Certain  facts  can  however  be 
definitely  stated. 

There  have  been  in  the  past  some  conspicuous  instances  of 
gross  and  utterly  dishonest  inflation  of  the  capital  stock  of  rail- 
roads. Colossal  fortunes  were  by  these  means  amassed,  and  the 
methods  of  operation  in  those  cases  which  have  been  exposed 
have  cast  discredit  upon  all  railroad  financiering. 

On  the  other  hand  it  is  just  as  certain  that  the  railroad  prop- 
erties of  the  United  States  to-day  represent  an  actual  value  con- 
siderably in  excess  of  the  aggregate  capital  stock  and  funded 
debt.  In  part,  but  in  comparatively  small  part  only,  this  is 
due  to  the  increase  in  the  value  of  lands  held  by  the  companies, 
whether  granted  by  the  government  or  purchased  for  t^minal 
purposes  in  cities.  But  it  is  difficult  to  understand  why  the 
companies  are  not  as  justly  entitled  to  this  increase  in  values 
which  they  themselves  have  created,  and  which  they  built  their 
railroads  chiefly  with  the  deliberate  purpose  of  creating,  as  is 
the  farmer  or  investor  in  city  property  entitled  to  the  increase 
in  value  of  his  land  which  the  railroad  company  has  created  for 
hirii. 

But  far  more  important  factors  in  the  immensely  increased 
value  of  railroad  properties  to-day  are  two  other  processes.  One 
of  these  is  the  constant  elimination  of  stock  and  wiping  out  of 
debt  in  foreclosures  and  reorganizations.  Complete  statistics 
on  this  point  are  promised  by  the  statistician  of  the  Inter-state 
Commerce  Commission,  but  meanwhile  it  is  recognized  by  stud- 
ents of  the  railroad  problem  (and  figures  unlimited  are  put  forth 
and  might  be  quoted  here  to  prove  it)  that  the  total  amount  of 
liabilities  which  have  thus  been  wiped  out  is  largely  in  excess  of 
any  possible  original  over-capitalization. 

The  most  careful  compilation  of  records  which  we  have  seen 
on  this  subject*  covers  a  period  of  fourteen  years  only,  viz., 
from  1876  to  1889,  inclusive.  In  these  fourteen  years  the 
amount  of  capit^al  stock  of  railroads  so  "wiped  out"  was  ^1,264- 
684,715,  or  an  average  of  ninety  million  dollars  a  year.  If  the 
records  could  be  carried  back  for  twenty-five  years,  it  is  certain 


•  Annual  Report  of  the  Directors  of  the  Chicago  &  Alton  Railroad,  1890.    The 
figures  compiled  from  the  records  of  the  Railway  Age. 


38  OUR    RAILROADS. 

that  it  would  be  found  that  over  ^2,000,000,000  of  stock  had 
been  thus  disposed  of, — or  about  one-half  of  the  total  capital- 
ization of  all  the  railroads  of  the  country  to-day.  The  number 
of  railroads  sold  under  foreclosure  in  the  fourteen  years  was 
448. 

The  second  process  is  the  terribly  expensive  annual  "  better- 
ment "  of  the  railroads,  including  in  that  term  the  sinking  of 
capital  in  improvements  of  track,  in  building  spurs  and  sidings, 
in  erecting  new  stations  and  bridges,  and  renewing  and  replacing 
old  wooden  bridges  with  iron  and  stone  structures,  and  in  the 
purchase  of  cars  and  locomotives.  There  are  one  million  cars 
in  the  United  States  to-day  and  thirty  thousand  locomotives. 
The  value  of  these  is — or  the  cost  to  the  railroad  companies  has 
been — just  about  ;^ i ,000,000,000 — nearly  one-eighth  of  the  total 
capitalization  and  debt  of  all  railroads  being  thus  represented 
by  the  equipment  alone. 

The  "  cost"  of  the  railroads  of  the  country,  as  reported  by  the 
companies  themselves,  shows  an  average  of  two  to  three  thousand 
dollars  a  mile  less  than  the  total  of  capitalization  and  debt.  The 
valuation  of  the  properties  to-day  is,  on  the  average,  several 
thousand  dollars  a  mile  in  excess  of  the  capitalization  and  debt. 
It  is  easy,  of  course,  to  say  that  the  mere  fact  that  the  railroad 
companies  themselves  make  the  reports  of  cost,  and  make 
them  knowing  that  there  is  no  one  who  can  authoritatively 
dispute  their  statements,  at  once  discredits  the  reports  and  makes 
them  unworthy  of  credence.  At  the  same  time  the  internal  evi- 
dence is  strongly  in  favor  of  the  accuracy  of  these  reports. 

We  have  seen  what  an  immense  amount  of  money  is  repre- 
sented by  the  equipment — the  motive  power  and  rolling  stock — 
of  the  country.  We  know  what  colossal  expenditures  a  single 
company  will  sometimes  make  to  obtain  entrance  to  or  terminals 
in  one  large  city.  We  are  familiar  with  the  costliness  of  indi- 
vidual railroad  bridges.  We  can  guess  at  the  vastness  of  the 
sums  which  have  been  spent  in  tunnelling  and  other  engineering 
work  in  the  mountain  regions.  When  a  piece  of  track  is  taken 
from  the  hands  of  a  contractor  or  construction  company,  up  to 
which  time  it  may  have  cost  the  railroad  company  not  more 
than  ;^i 5,000  a  mile,  or  even,  in  rare  instances,  less  than  $10,000 
a  mile,  the  real  building  of  the  road  is  only  begun.     For  years 


OUR    kAILROADS.  39 

afterwards  work  has  to  go  on  on  what  is  really  the  construction, 
and  for  years  capital  is  being  sunk  in  it. 

It  is  a  curious  fact  that  in  the  recent  Minnesota  rate  cases, 
wherein  the  decision  of  the  United  States  supreme  court  has  be- 
come so  famous,  it  became  necessary  or  expedient  for  one  of  the 
companies  to  show,  if  possible,  that  its  road  had  really  cost  the 
money  represented  by  its  stock  and  debt;  whereupon  the  original 
vouchers  for  every  dollar  of  (and  for  rather  more  than)  the 
amount  of  those  liabilities  were  put  into  court  in  evidence,  show- 
ing exactly  how  much  of  the  money  had  been  paid  for  locomo- 
tives and  to  whom,  and  how  much  for  track  and  to  whom,  and 
so  on  through  every  item  of  construction. 

The  statistician  to  the  Inter-state  Commerce  Commission,  after 
presenting  certain  statistics,  remarks  :*  "A  comparison  of  the 
percentages  presented  in  the  above  tables  tends  to  increase  the 
confidence  with  which  one  regards  statistics  of  railways ;  for  if 
there  were  general  carelessness  in  reporting  on  the  part  of  the 
carriers,  or  if  unstable  rules  were  followed  in  keeping  accounts, 
there  could  not  be  such  uniformity  in  results  as  the  above  tables 
disclose." 

The  Railroad  Commissioner  of  Wisconsin,  in  his  last  biennial 
report,!  comments  briefly  on  the  question  of  whether  the  cost 
reported  by  the  railroads  represents  the  actual  cost  of  the 
properties,  and  explains  why,  with  the  dishonest  methods  once 
in  vogue,  it  is  not  easy  now  to  ascertain  how  much  actual 
money  was  originally  put  into  the  older  lines.  "  But  roads 
are  not  built  thus  to-day  in  Wisconsin.  The  most  of  them  are 
built  with  cash,  and  the  managements  have  great  care  over  ex- 
penditures. The  cost  of  a  road  built  and  equipped  to-day  can 
become  known  with  as  much  accuracy  and  certainty  as  can  any 
other  great  building  enterprise." 

Distrust  of  railroad  financial  statements  and  belief  in  the 
enormous  volume  of  fictitious  capital  in  railroads  are  always 
found  flourishing  most  vigorously  in  minds  furthest  removed 
from  any  practical  acquaintance  with  railroading.  They  are 
most  luxuriant  in  the  agriculturalist  and  the  country  politician. 
They  wither   (or,  to  change  metaphors,  they  contract  like  the 


•Statistics  of  Railways  of  the  United  States.     Page  32. 
t  Report  to  Jane  30th,  1888.     Page  1 0. 


40  OUR   RAILROADS. 

pupil  of  the  eye,  as  the  light  of  information  shines  upon  them), 
as  those  in  whom  they  are  rooted  acquire  knowledge.  In  the 
real  "students  of  the  railroad  problem,"  they  exist  not  at  all. 
Unfortunately,  the  men  who  are  most  competent  to  speak  on 
railroad  statistics  are  either  men  in  official  positions,  who  have 
not  the  courage  to  speak  plainly,  or  railroad  managers  and 
railroad  presidents,  whose  evidence  is  inadmissible  here. 

In  view  of  all  the  foregoing  facts,  however — in  view  of  the 
enormous  costliness  of  all  those  things  which  combined  form  the 
railroad  properties  of  the  country — in  view  of  the  unquestioned 
fact  that  the  present  value  of  the  railroads  far  exceeds  the 
capitalization  and  debt,  and  that  they  could  not  be  duplicated  for 
approximately  those  amounts  to-day — in  view  of  the  fact  that 
incredulity  (which  is  only  credulity  of  the  negative  proposition), 
exists  in  men  in  proportion  to  their  lack  of  information — in  view 
of  the  fact  that  the  railroads  of  every  other  country  of  the  world 
have  cost,  actually  ccst  (for  the  expenditures  there  are  supervised 
by  the  governments)  from  30  per  cent,  to  300  per  cent,  more  than 
the  railroads  of  this  country — in  view  of  all  these  facts,  we  say, 
it  does  not  seem  that  the  figures  of  capitalization  in  this  country, 
less  than  ^60,000  a  mile,  are  or  can  be  excessive. 

There  is  not  one  railroad  man  who  believes  that  they  are. 

THE    RAILROAD    EMPLOYE. 

We  have  already  briefly  touched  upon  the  effect  which  the 
present  situation  has  upon  the  railroad  employe.  It  is  not 
necessary  here  to  dilate  upon  the  fact  that  the  relations  between 
employer  and  employe  on  the  western  railroads  have  recently 
been  far  from  harmonious.  The  daily  papers,  with  their  daily 
details  of  strikes  and  "troubles"  of  all  kinds,  state  this  fact  with 
sufficient  clearness.  And  the  truth  is  that  the  railroad  employe 
is  suffering,  and  has,  for  the  past  few  years  suffered,  many  hard- 
ships. It  is  not  that  the  average  of  wages  paid  by  railroad 
companies  is  not  fairly  good.  It  is  good.  Where  the  employe 
suffers  chiefly  is  in  uncertainty  as  to  the  continuance  of  his 
employment.  In  the  constant  struggle  to  cut  down  expenses  to 
conform  to  diminishing  earnings,  the  railroad  companies  of  the 
Southwest  and  Northwest  have,  during  the  last  three  years,  been 
compelled  to  practice  economies  which,  ten  or  even  five  years  ago. 


OUR    RAILROADS.  4I 

expert  railroad  men  would  have  pronounced  impossible.  There 
has  long  been  recognized,  though  never  clearly  defined,  what 
has  been  called  the  "danger  line"  in  the  number  of  employes  to 
be  employed  in  the  operation  of  a  given  length  of  road  and  the 
handling  of  a  given  train  service  or  tonnage  movement.  For 
these  last  few  years  this  "danger  line"  has  been  disregarded, 
obliterated,  forgotten.  The  permanent  force  of  the  railroads  has 
been  reduced.  And  even  that  force  is  subject  to  constant  in- 
vasions and  temporary  reductions.  As  soon  as  work  in  the 
shops  begins  to  grow  light,  hours  of  labor  are  reduced  and  the 
wages  are  diminished  in  proportion.  On  the  smallest  pretext  of 
fair  weather  and  security  from  fear  of  floods  or  snow  storms, 
track  forces  are  cut  down  to  the  lowest  point.  The  smallest 
diminution  in  the  volume  of  traflSc  is  announced  to  the  men  by 
the  "laying  off"  of  them  in  blocks.  And  these  intervals  of  idle- 
ness, shortened  hours  and  uncertainty  of  employment  are  worse 
than  regular  work  at  lower  wages  would  be.  But  the  volume 
of  business  on  the  railroads  ebbs  and  flows.  At  times  they  must 
have  full  forces ;  at  others  they  need  not,  and  they  cannot  afford 
to  keep  one  superfluous  man  on  the  pay-roll. 

In  the  state  of  Iowa  there  were  in  the  year  1889,  (see  page  12, 
Commissioner's  Report,  1889),  5.594  fewer  employes  than  in  the 
year  1888.     The  railroad  mileage  was  about  the  same. 

In  the  state  of  Minnesota  there  were  in  the  year  1889, 
(see  page  10,  Commissioner's  Report),  703  fewer  employes 
than  in  the  year  1888.  The  railroad  mileage  had  increased  by 
260  miles.  The  average  number  of  employes  to  every  100 
miles  of  road  in  the  whole  United  States  is  459,  (see  I.  C.  C. 
Statistician's  Report,  p.  16),  so  that  there  should  have  been  an 
increase  of  about  1,200  instead  of  a  decrease  of  700.  The 
number  of  locomotives  to  be  operated  and  cars  to  be  handled 
had  correspondingly  increased. 

On  all  the  lines  of  the  companies  operating  in  the  state  of 
Minnesota,  there  were  8,382  fewer  employes  in  the  year  1889 
than  in  the  year  1888. 

And  these  figures  of  the  reduction  in  permanent  force  show,  as 
has  been  said,  only  a  small  part  of  the  real  hardship  which  has 
been  inflicted  on  the  railroad  employes  by  the  reductions  in  rates 
and  earnings. 


42 


OUR    RAILROADS, 


The  railroad  employe  does  not  entirely  understand  the  situa- 
tion. He  knows  that  he  is  badly  used ;  that  he  has  a  grievance. 
He  carries  his  grievance  to  the  company ;  and  the  daily  papers 
announce  the  fact.  The  officials  of  the  company  tell  him  that 
they  are  anxious  to  do  the  best  they  can  by  him  but  that  they 
can  do  no  better  because  they  have  no  money  to  pay  him  with. 
The  employe  then  either  suffers  in  silence  or  he  strikes  and 
makes  the  public  suffer.  As  has  been  said,  he  does  not  yet  en- 
tirely understand  it.  He  knows  that  the  company  has  more  cars 
and  more  engines  than  it  used  to  have  ;  that  the  cars  and  engines 
seem  to  be  busy.  Why  then  is  the  company  not  able  to  give 
him  work  and  wages  ? 

The  following  table*  of  average  freight  rates  per  ton  per 
mile  throughout  the  country  for  the  last  seven  years  may  sup- 
ply the  answer : 

CENTS. 

1883 ^-2^^ 

1884 l'^24 

1885 ^057 

1886 1042 


1887. 
1888. 
1889. 


.1.034 
.0.977 
.0.976 


If  the  rates  had  been  the  same  in  1889  as  they  were  in  1883, 
the  railroads  would  have  earned  $170,000,000  more  than  they  did 
earn  in  that  year  from  freight  alone.  And  then  there  would 
have  been  no  trouble  in  keeping  pay-rolls  full. 

The  following  table  also  shows  the  steady  decrease  in  rates  on 
one  of  the  large  Western  roadsf  through  a  series  of  years.  As 
has  been  said,  the  rates  on  all  roads  in  the  same  territory  are 
at  any  given  time  necessarily  about  the  same,  and  the  figures 
given  in  this  table  would  be  about  the  same  on  every  Western 
railroad : 

•Poor's  Manual,  1890.     P.  XIII. 

tReport  of  the  Chicago  &  Northwestern  Railway  for  the  year  ending  May  31. 
1890. 


OUR    RAILROADS. 


43 


FISCAL  YEAR  ENDING 

Average  Rate  Per 
Ton  Per  Mile. 

Average  Rate  Per 

Passenger  Per 

Mile. 

May  31st 

1871 

CENTS. 
2.87 
2.61 
2.35 
2.28 
2.10 
1.95 
1.86 
1.72 
1.56 
1.49 
1.47 
1.47 
1.42 
1.31 
1.19 
1.19 
1.10 

.99 
1.01 

.98 

CENTS. 
3.31 

1872 

3.28 

1873 

3.16 

1874 

1875 

3.20 
3.02 

1876 

2.85 

1877 

2.89 

1878 

2.83 

1879 

2.79 

1880 

2.67 

1881 

2.53 

1882 

2.52 

1883 

2.46 

1884 

2.40 

1885 

2.38 

1886 

2.36 

1887 

2.29 

1888 

2.30 

1889 

2.24 

•  <               a 

1890 

2.17 

Poor's  Manual  for  1889  analyzes  the  rates  on  thirteen  typical 
railroad  lines  in  the  United  States  for  the  last  twenty-four  years, 
and  shows  that  these  railroads  received  in  1888  only  ;^20.00  for 
services  for  which  in  1865  they  received  ;^ioo.oo — a  decrease  of 
75  per  cent. 

Of  the  northwestern  companies,  whose  fiscal  year  ended  with 
June  30th,  1890,  the  president  of  one*  company  informed  the 
stockholders  that  that  company,  during  the  year  had  made  no 
attempt  to  compete  for  its  share  of  wheat  and  flour  business,  as 
the  traffic  cost  more  to'  haul  than  it  paid.  The  receiver  of 
another  companyf  announced  that  for  the  same  reason,  his 
company  had  gone  entirely  out  of  competing  for  any  through 
business,  not  even  having  competitive  tariffs  in  effect. 

During  the  year  1890,  //le  average  eastbound  rate  on  wheat  and 
flour  from  the  Northwest  has  been  o.j  of  a  cent, — three  mills  per  ton 
per  mile.  That  is  to  say  that  one  ton  of  wheat  has  been  hauled 
three  miles  for  one  cent.  During  the  year  1889,  the  average 
earnings  per  ton  per  mile  in  the  whole  country  were  0.976  of  a 
cent.     On  the  Pennsylvania  Railroad,  with  its  enormous  traffic, 


•The  Chicago,  St.  Paul  &  Kansas  City  Ry. 
tThe  Minneapolis  &  St.  Louis  Ry. 


44  OUR    RAILROADS. 

the  earnings  per  ton  per  mile  were  0.626  of  a  cent,  and  the  cost 
of  moving  one  ton  one  mile  was  o  401  cent. 

The  above  rate  on  the  northwestern  lines  was  therefore  less 
than  one-third  of  the  average  freight  rate  of  the  country ;  less 
than  half  the  average  rate  on  the  crowded  Pennsylvania  lines, 
and  even  one-fourth  less  than  it  actually  cost  the  Pennsylvania 
Railroad  to  do  its  business. 

In  the  Southwest  the  condition  of  rates  on  corn  and  other 
staples  has  been  even  worse  than  this. 

At  such  rates  it  is  not  easy  to  see  how  a  railroad  company  can 
hope  to  pay  its  employes  reasonable  wages,  or  keep  them  on  the 
pay-rolls  when  business  is  light. 

CONCLUSION. 

In  conclusion,  we  have  seen 

1.  That  the  railroads  of  the  United  States  have  cost  less 
than  the  railroads  of  any  other  country  and  are  capitalized  for 
less. 

2.  That  in  spite  of  this  fact  the  rate  of  returns  earned  upon 
the  capital  invested  is  less  than  in  any  other  country. 

3.  That  in  the  West  the  railroads  have  again  cost  less  and 
earn  less  on  their  investment  than  the  rest  of  the  railroads  of 
the  United  States. 

4.  That  the  average  rate  of  returns  on  all  railroad  invest- 
ments in  the  country  was,  in  the  year  1889,  less  than  t,^  per 
cent. 

5.  That  in  that  year  over  three  billions  of  dollars  ($3,300,- 
000,000)  of  American  railroad  securities  were  absolutely  unpro- 
ductive of  any  revenue. 

6.  That  in  the  Northwest  the  rate  of  dividend  payments  on 
all  stock  was  less  than  one-half  of  i  per  cent,  and  in  the  South- 
west that  it  was  less  than  three-quarters  of  i  per  cent. 

7.  That  out  of  ninety  railroads  in  seven  states,  fifteen  compa- 
nies only  paid  dividends  and  seventy-five  were  unproductive. 

We  have  seen  that  this  condition  of  affairs  is  owing  to  the  ex- 
traordinary lowness  of  rates  which  now  prevails,  and  that  under 
existing  legislative  conditions  the  railroads  cannot  protect  them- 
selves or  establish  rates  on  a  more  remunerative  basis,  except 
by  consolidating. 


OUR    RAILROADS.  45 

The  holders  of  the  railroad  securities  number  something  over 
one  million  persons  in  this  country. 

The  railroad  employes  of  the  country  number  over  700,000 
persons. 

It  is  estimated  that  there  are  further  engaged  in  allied  indus- 
tries in  this  country,  entirely  dependent  upon  the  railroads,  from 
1,500,000  to  2,000,000  persons  more. 

We  have  seen  how  much  hardship  is  being  inflicted  upon  the 
holders  of  the  securities  by  the  present  conditions.  We  have 
seen  what  injury  is  being  done  to  the  employes.  We  have  also 
seen  certain  grave  dangers  which  are  threatening  the  public  at 
large. 

Now,  supposing  for  one  instant  that  it  is  possible  that  the 
people,  as  a  whole,  are  not  interested  in  the  welfare  of  the  rail- 
roads and  their  maintenance  on  a  safe  basis  of  operation ;  sup- 
posing, for  an  instant,  that  they  could  look  on  with  indifference, 
so  far  as  their  personal  interests  were  concerned,  and  see  the 
commerce  of  the  country  suffering  from  insufficient  train  ser- 
vice, tracks  in  bad  repair,  and  inadequate  equipment ;  supposing 
that  they  do  not  care  if  all  the  lines  in  the  country  are  absorbed 
by  five  or  six  gigantic  systems — supposing  all  this,  and  consider- 
ing only  the  few  millions  who  are  immediately  interested,  is  it, 
firstly,  the  part  of  political  expediency  to  compel  these  men  to 
combine  together,  their  hands  against  every  man's,  for  the 
protection  of  their  rights  and  their  homes ;  and,  secondly,  is  it 
the  part  of  justice  to  deprive  them  of  the  returns  on  their  capital 
and  their  labor,  and  to  confiscate  their  property  ? 

Do  we  need  more  anti-railroad  laws,  or  do  we  not  ? 


Zf 


^iJii*: 


3  0112  062003469 


